Home-income Taxpayers Undergo Decrease of Mortgage Interest Deductions

By Pin-Yu Liao

President Barack Obama is proposing a plan that will decrease mortgage interest deductions for high-income tax payers. There will be a drop to 28% tax break for itemized deductions for the aim of generating $ 318 billion over the 10 years. The high-income people with 33% tax bracket will have only 28% tax savings when they claim their deductions on mortgage interest, state and local taxes starting in 2009. They get 28 cents instead of 35 cents for every dollar they spend on the mortgage interests. In other words, tax payments on the families earning more than $250,000 will be raised.
The middle class and the low-income people pay claim standardized deductions, but they receive no benefit from the mortgage interest deductions. In effect, the value of the home will go down as a result of increasing ownership costs. The tax policy has always been setting a limit for high-income taxpayers to claim their itemized deductions, since they are more able to afford more tax pay.
Mortgage interests of $48,000 dollars per year will result in a tax break of $16,800 at 35%, but with the new policy it would be $13,440 dollars tax savings. The high-income people have to contribute $3,360 more to IRS.

Sources:

http://www.usnews.com/blogs/the-home-front/2009/02/26/mortgage-interest-deduction-on-the-chopping-block.html
http://money.cnn.com/2009/02/27/real_estate/mortgage_interest_deduction_slashed/index.htm?postversion=2009022718
http://voices.washingtonpost.com/local-address/2009/02/is_uncle_sam_aiming_at_your_mo.html