Mortgage deduction cut in half?
That is the headline I saw yesterday and while it’s technically true, it’s not the truth.
This could turn into an article that bashes ‘clickbait’ or it could be one on the real estate market and how home values are rising and will likely continue to rise for the next few years. Maybe both and some rabbit trails to be wandered down along the way. Stick with me.
Clickbait – You have to recognize the ‘news’ business is a business. They have to make money or they won’t be around and advertising is how they do that. Clicks are how they get paid or track readership to be able to figure out what to charge. Making outrageous claims or invoking fear / anger is the best way to get you to click and we fall for it I guess for the same reason we slow down as we pass a car on fire.
Let me get to that headline next. Yes, technically the GOP plan cuts the tax deduction on a mortgage interest from $1 million to $500,000. Yes, that’s right. It cuts the deduction on a mortgage over $500,000. That’s true.
Here’s the truth
So who does that affect? Here’s the truth. I looked at the average sales price by state in the US and found it would affect folks in 5 states and Washington DC leaving 45 states unaffected. Now, this is the average sales price so I am sure someone could cherry pick a case in every state but frankly if you can afford a $500,000 house and the mortgage on it, you should be able to afford your taxes that go along with it. I’d also like to point out that the number affected is even smaller because 30% of all houses are owned free and clear. Only 70% of home owners have a mortgage at all.
The other thing about this is you don’t buy a house for tax savings. If you pay $1000 in a month on mortgage interest to save $250 in taxes then I would suggest a remedial math class is in order. It’s not the reason to buy.
Saving $250 in taxes is a benefit, not a reason. You buy a home to have a place to live and your personal home is a liability, not an asset. If you have a mortgage you’re renting money instead of renting a place to live but bigger is the freedom to do what you want with your house. Decorate, improve, enjoy. Pride in ownership starts other things happening like saving and being wise with your money. Home owners have a larger net worth than the tenants but I think that is as much ‘mindset’ as it is numbers. I’ll likely dig more into this later.
Eliminate the home mortgage deduction completely
I’d personally propose removing the mortgage tax deduction completely. The FairTax would eliminate personal income tax and the IRS and replace it with a consumption tax. No tax, no deduction. If you’re not familiar with the FairTax or are misinformed about it then do some research. I believe if we passed the FairTax and term limits on the House of Representatives and Senate, we’d do more toward draining the swamp than Trump ever could.
Home Values are going up
Last thing, home values are increasing across the board. It’s basic supply and demand. We have very low inventory under about $300K locally and that drives up prices. Builders need to build about 1.2 million new homes annually to keep up with demand and we are far below that. Since 2007 we have built less than half that and it has hurt us on the inventory front. Last year we had 782,000 new houses built nationally so it’s increasing but we’ll be in this spot for a while.
When you see a clickbait headline that says sales are down, don’t believe it. You can skip over it and move on to cat videos on Facebook. Sales might be down but it’s an inventory problem. We’ll be fine.
Sorry about the rant today but I had to get it off my chest. Hope you have a great ‘fall back’ weekend. Remember to set your clocks back 1 hour before you go to bed Saturday night or you’ll be really early for church.
While you’re at it, set your scales back 10 pounds to get ready for the holiday season.
Thanks for listening,
Jerry Robertson
678-231-1578 Cell