Housing-related tax deductions, including home mortgage interest and real estate taxes, account for 49% of total itemized deductions. For middle-income tax itemizers, 56% of deductions are housing-related, which means a low cap on itemized deductions would reduce homeownership benefits for the middle class.
In the second presidential debate, the candidates did everything they could to avoid talking about housing. In listing what he did over the last four years, Obama didn’t mention any housing accomplishments. And, in listing all the problems that Obama failed to fix, Romney didn’t mention housing, either. Both candidates even avoided the mortgage interest deduction when talking about taxes. Romney suggested capping aggregate deductions at $25,000 without explicitly limiting any particular deduction, and Obama criticized Romney for not specifically calling out which deductions he would limit.
But housing was a part of this debate, even if not by name. Nearly half of the value of itemized deductions is housing-related, and capping deductions at $25,000 would hit many middle-income people. To see what a cap on itemized deductions would mean for housing, we looked at the most recent published IRS data on individual tax returns (2009) to sort out the facts.
First, let’s start by looking at who actually itemizes their tax deductions. The table below shows that only one-third of tax-filers itemize, but this ranges hugely by income. Only 15% of filers with less than $50,000 adjusted gross income (AGI) itemize their deductions, compared with 96% with $200,000 or more AGI. Higher-income filers include a much higher average total of itemized deductions, too. A cap of $17,000 – which is what Romney suggested two weeks ago – is roughly equal to the amount that the typical itemizer with less than $50,000 AGI deducts, so many lower-income itemizers wouldn’t be affected at all by that cap. But even a higher cap of $25,000 would hit many people in the $50,000-$200,000 range and probably most in the $200,000-plus range.0 comments
Trulia’s Chief Economist Answers His Top 3 Most-Asked Mortgage Rate Questions
Today we launched the Trulia Mortgage Center, available online and on dedicated iPhone and iPad apps, to help prospective homebuyers and current homeowners get personalized, real-time mortgage quotes. In honor of our newest offering, I wanted to answer the three questions about mortgage rates that I get asked most often.
First: how do mortgage rates affect the housing market?
Let’s start with the obvious: the mortgage rate determines the interest you pay on your mortgage loan when you borrow in order to buy or refinance your home. Your monthly mortgage payment includes (1) the interest you owe on your outstanding loan balance and (2) a portion of the principal itself, which reduces the remaining loan balance. The mortgage rate really matters because a one-percentage point difference in mortgage rates translates into at least a 10% difference in the monthly mortgage payment. For example: on a standard 30-year fixed-rate mortgage, the monthly payment on a $200,000 loan would be $955 for a 4% mortgage versus $1074 for a 5% mortgage. That’s a monthly difference of $119.
You might think that low rates encourage people to buy homes, but it’s not quite that simple. Lower mortgage rates do make homeownership cheaper, but lots of other factors go into the decision about whether to buy a home. Among renters who are interested in buying, saving for a downpayment is a bigger obstacle than being able to get or afford a mortgage. And, because low mortgage rates can signal a weak economy (see next question), homebuying can slow down even when rates are low. At the height of the housing bubble in 2005 and 2006, when homeownership and home sales peaked, the 30-year fixed mortgage rate hovered between 5.5% and 7%; since then, homeownership and sales have fallen, even though mortgage rates have been dropping since 2007 to less than 4% this year.0 comments