Real Estate in Northeast Florida and Around the World

Have you heard the latest tax change being discussed in Congress?  The removal of the mortgage interest deduction is being discussed heavily, and it is time to let those legislators that it is a step too far. Again.  Here is some interesting information compiled by the National Association of Realtors (NAR).

Mortgage Interest Deduction Facts:

• 51 million—or 68 percent—of the approximately 75 million owner-occupied houses in the United States in 2009 had a mortgage.
• 38.5 million taxpayers claimed a deduction for mortgage interest, deducting a total of $470 billion, in 2008.
• The average taxpayer claiming the MID deducted $12,200 from taxable income in 2008.
• Therefore, the average taxpayer saved $3,050 in taxes by claiming the mortgage interest deduction¹ .
• The total tax savings from the MID in the United States in 2008 was $117 billion.

Real Estate Tax Deductions Facts:

• 42 million taxpayers in the United States claimed a deduction for real estate taxes in 2008, deducting a total of $172 billion.
• The average taxpayer claiming the real estate tax deduction subtracted $4,090 from taxable income in 2008.
• Therefore the average taxpayer saved $1,020 in taxes as a result of the real estate tax deduction² .
• The total savings from the real estate tax deduction in the United States in 2008 was $43 billion.

Eliminating Deductions: Losses for Home Owners and the Nation

If the mortgage interest and real estate tax deductions were eliminated, the loss would not be a one-year event; homeowners lose out on these potential savings each and every year. The present value³ of these lost savings could total $3.2 trillion. The value of all owner-occupied real estate in the United States in 2009 was $19.3 trillion⁴ . If the lost tax savings are fully capitalized into the price of houses, the average decline in value in the United States would be 17 percent. From the individual perspective, the median priced home in the United States in the third quarter 2010 was $177,800. A decline in value of 17 percent, as projected, would mean a loss in home value of $29,500 for the typical home owner.

These estimates, because they are based on a complete elimination of these deductions, can be viewed as a high-end estimate. Other changes will result in smaller losses to home owners. Additionally, national results are computed by looking at national averages. A very different picture can result when looking at the state level depending on the characteristics of the housing market, tax payers, and homeowners. For state information, contact data@realtors.org.

It is up to us to make our voices heard.  If this disturbs you as it has me, please contact your federal legislators today to let your voice be heard!

¹Marginal rates range from 10 to 35 percent. A 25 percent rate was used to calculate the tax savings.
²Ibid.
³Present value calculation assumes 5 percent discount rate and 1000 year time horizon.
⁴As measured by the American Community Survey. The Federal Reserve Flow of Funds for 2009 estimated the market value of household real estate to be $17 trillion which would raise the estimate of the decline in value to 19 percent.