Capping Itemized Deductions and the Housing Market

“Capping Itemized Deductions and the Housing Market”

It’s the silly season all over our country.  Politicians hoping to capture our vote with as little useful policy information as possible.  A local DJ suggested a drinking game for debate watchers.  Everytime a candidate mentioned the middle class, you had to take a drink.  Not a game for light weights.

Since none of the Presidential cadidates directly addressed how their policies will affect housing,  let’s take a look at how capping deductions will affect the various classes.  Governor Romney suggested capping deductions at $25,000, up from his original plan of a $17,000 cap.  According to the IRS, 49% of all deductions are housing related, so who really pays if deductions are capped and at what level does the middle class get ground down even further?

Most lower income earners aren’t affected by either cap because they don’t usually itemize.  It’s those earning $50,000-$200,000 (the middle classs) and high income  earners, bringing home more than $200,000 a year, who stand to pay more.  A recent study shows this could lead to a further deterioration of home prices in higher cost areas.

IRS studies conclude that households earning between $50,000 and $200,000 take an average of $24,000 in deductions, with the majority (56%) of their deductions being housing related.  Younger buyers, still in the early stages of their mortgages,   typically claim the largest housing deductions since most of their payments are  applied towards interest.  Higher income earners deduct more for state and local taxes than housing related items.

How can we contribute to deficit reduction without making home ownership in higher cost areas less affordable for the middle and upper classes?  Why not cap middle class deductions at a higher rate than high income earners or, as I’ve heard suggested on CNBC, do away with the mortgage deduction for interest on 2nd homes and investment properties?  What’s your suggestion?

Did you know that in most markets, it’s still 45% cheaper to buy a home than it is to rent?  If you want to explore the benefits of homeownership, call, text, or email me and let’s get the dialogue started.

This blog was based on an article published by Trulia in it’s Trulia Trends (Real Estate Data for the Rest of Us) series, written by Jed Kolko, Trulia’s chief economist.

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About Ruth Zeiss

As a Realtor servicing the state of Connecticut, I believe everyone deserves a boutique level of client care, regardless of the size of the moat around their castle. I believe that homeownership is the gateway to prosperity. Why build someone else’s equity when you can build your own wealth? If you’re a buyer, my goal is to find you a home you can not only afford to buy, but a home you can afford to keep. Are you selling your house? I will work with you to market and sell your property. Your ideas are always welcome because no on knows their house as well as you do. If you are a renter, you know how competitive the rental market is. I will help you find the best quality rental in your budget Is your credit scratched and dented? I will help you market yourself to the landlord so you can overcome those blemishes on your credit report & get the rental. Buying, selling, or leasing, I will protect your interests every step of the way from the initial negotiations, to inspections, appraisals, and finally the closing table. I care for my clients as if you are my own children. It’s not just my job, it’s the way I’ve always done business. Ruth Zeiss CT Real Estate License RES.0789147
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