Mortgage Deductions Targeting the Wealthy

The Obama administration hopes to tap the rich to help pay for its ambitious programs. Specifically, that would include slashing mortgage interest deductions for high-income taxpayers.

The proposal would cap the tax break for itemized deductions at 28%.

That would leave people in higher marginal tax brackets of 33% and 35% – the wealthiest Americans – with a smaller benefit from the deduction of mortgage interest, state and local taxes and other items such as charitable contributions.

Housing industry sources were disheartened by the news, saying it would put downward pressure on home prices.

The plan, which wouldn’t start for another two years, is intended to focus solely on high-income Americans, but its impact would be much broader, say industry sources.

For example, someone in the 35% marginal rate bracket buying a million dollar home and putting 20% down would have an $800,000 mortgage. At 6% interest, they’d be paying interest of $48,000 a year, or $4,000 of their $4,797 a month mortgage payment.

Currently, 35% of that payment – $16,800 – is tax savings, but under the new plan, only $13,440 would be, a $3,360 difference.

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