The Fiscal Cliff and the Cap on Mortgage Interest Deductions: Real Home-Buyers React

Economists are holding their breaths this holiday season, wondering about the economic impact of the government’s budget negotiations and the fiscal cliff we’ll plunge off if a deal isn’t done by January 1.

While we blithely push our shopping carts down the aisles of Target and Toys-R-Us, an unprecedented re-structuring of government spending and taxes is in the works, and it all has to get settled in the next 25 days by people who just want to go home, and who all seem to hate each other’s guts.

For the full report visit the Redfin Research Center.

Discussion

  • http://www.mlschattanooga.org/ Ashlee Anderson

    I would say for the vast majority of buyers this will not matter that much if at all because they will not be making enough for it to matter. For the buyers that the cap could matter, they are likely doing well off financially that it wouldn’t be a drastic issue.

  • Babak Mozaffari

    At this point it is almost certain that the mortgage interest tax deduction will be affected. If not directly targeted, you have to look at a variety of other proposals on the table to see how they limit itemized deductions and most of them do. Not everyone realizes that most limits and changes to the itemized tax deduction are in effect limiting the mortgage interest deduction.

    As for whom this impacts, that’s a funny point you bring up. I recently talked to a relative who makes no more than $50k or so and is looking to buy a very cheap home relative to SoCal prices. He was excited about the mortgage interest tax deduction he would get and I had to explain to him that the numbers didn’t add up. Most people don’t realize if they’re currently using the standard deduction, that means that at least part, if not all of the mortgage interest goes towards making up the difference between the two and they either don’t benefit or only partially benefit from this deduction.

    So while it is interesting to know what homebuyers think, that is a lousy metric to predict the impact to the housing market. At best it tells us a little about our current baseline.

  • sense

    It would sorely affect me. Currently, I write off 22,000/year w/real estate taxes, charitable deductions and mortgage interest. We don’t make 250,000/yr or anywhere near it. Not being able to write off anything now would have a very sore affect. That’s 22,000 more I’d have to claim on my income taxes – I’d be broke in an environment why my spouse is back/forth between working & being unemployed, something we had no control over. If I have to end up paying taxes on 22,000 that means I’m going to be in the hole by a lot more than I anticipated. We’re a 1 home family. Any plans to spur the economy will be put on hold as we’ll need every dime we have just to pay taxes. Good bye modest lifestyle!

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  • kobe

    The Fiscal Cliff brawl came quite close from the legislation patchwork that’s been emerged; well it was not a total win for the home sellers as well homeowners. In fact a year back things have reached rear while bringing around the two main key in tax benefits for housing which were expired. Now it would be quite feasible for the homeowners to take the upcoming benefits which were assumed to be no longer available. Well another aspect indicates that it would not be so much problematic for the real home buyers as they are financially strong but the rest who want to deal in have to go along quick cash loan or money for fulfilling their wants.