Mortgage interest deduction has been around for a long time and has helped support the real estate market in the United States. This saves a significant amount of money for home owners, especially for those who have recently taken out a mortgage loan. Having this tax deduction makes home ownership more affordable because it reduces the home owner taxes. Here is a list of the most common questions about mortgage interest deduction and the answers that you are looking for:
Top 5 Mortgage Interest Deduction Questions
- Question 1: Do the rich benefit more from mortgage interest deduction? The truth is that, while mortgage interest deduction is beneficial for rich people, it mostly benefits middle-class families. 86 percent of the households who take advantage of mortgage interest deduction have an income of less than $200,000, with most of these households including the incomes of two married people.
- Question 2: Would eliminating mortgage interest deduction affect the economy and the housing market? Eliminating mortgage interest deduction would affect both the housing market and eventually the economy. Home buyers would be less attracted to buying a home, which would result in lower home prices due to low demand. Current home owners would experience major losses because they would find themselves with underwater mortgages. Falling home prices and less home buyers would mean that tax revenues would decrease, which would have a large negative impact on the economy.
- Question 3: Is it true that only a small percentage of home owners claim mortgage interest deduction? Almost all home owners with a mortgage take advantage of mortgage interest deduction at one point during home ownership. In fact, over 70 percent claim mortgage interest deduction in the first year of home ownership.
- Question 4: Would everyone have to pay more in taxes if mortgage interest deduction was eliminated? The middle-class would be most affected if mortgage interest deduction was eliminated. The taxes that middle-class households would have to pay would be much higher than what upper-class households would have to pay.
- Question 5: Does mortgage interest deduction encourage people to buy larger homes? Generally, the size of the home has more to do with the size of the family which buys it. Of course, bigger families need a bigger home, so they will have to pay more interest, which means they will benefit more from mortgage interest deduction than families who purchase smaller homes.
There are a few misconceptions surrounding mortgage interest deduction, but the bottom line is this: most home owners can take advantage of mortgage interest deduction. You shouldn’t choose a home based on how much you will save with mortgage interest deduction, but remember that owners of larger homes save more money over time. Eliminating mortgage interest deduction would most likely have huge negative impact on the economy, so you can still take advantage of it for the foreseeable future.