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Should rich homeowners get a bigger mortgage interest deduction?

I don't think so either.

But that's what the IRS has decided.

The IRS Office of Chief Counsel has sent agency staff a memo telling them that taxpayers can deduct interest on the first $1.1 million of a home mortgage. That's $100,000 more than before.

Basically, the IRS has decided that these folks, who already can afford a million-dollar-plus mortgage (or so we presume; who knows given the loan malfeasance we've seen, but that's for another blog item) get to automatically combine the statutory limits of $1 million in acquisition debt and $100,000 in home equity debt and then write off the interest paid on the $1.1 million loan amount.

Hmmm. So folks who can afford the maximum statutorily-deductible loan amounts for two separate products get to claim them in one fell swoop without actually taking out a home equity loan. Why do I hear the Church Lady's skeptical "How convenient" in my head every time I think about this IRS change of deduction heart?

Eye_on_irs I rant about elaborate on the increased mortgage interest deduction decision, which I was tipped to on Twitter by @JoeTaxpayerBlog (thanks, Joe!), over at my other blog, Eye on the IRS.

You can let me know if you share my misgivings about the increased write-off for rich homeowners by leaving me a note at that blog. Or, after reading that post, feel free to bounce back to Don't Mess With Taxes and leave your comments here.

Comments

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Kay

Donna,
I agree that being rich shouldn't make you a pariah, as I noted in my earlier post Don't Hate Me Because I'm Rich http://dontmesswithtaxes.typepad.com/dont_mess_with_taxes/2009/10/dont-hate-me-because-im-rich.html.

But neither should it confer special treatment.

What I object to here is the IRS making this decisiion unilaterally, and against prior court rulings, for, according to the Forbes story I cite in Bankrate blog, fewer thant 140,000 mortgage holders.

If we want to take the price it costs (or used to cost) to buy a home on either coast (and I do know, as I've lived in the DC area and South Florida pre-RE bubble bust), then that's Congress' job, not the job of the IRS chief counsel.
Kay

Donna Bordeaux, CPA, PFS

Don't worry -- with all of the other tax increases they face, the IRS will still be receiving more money. I personally don't see why you would not encourage people to buy houses of all values. Why stop at $1 million. If you look at NY and CA homes and cost of living, this is really unfair to them.

It is very politically correct at the moment to blame everything on the "rich" but it ought to be our goal to empower everyone to be able to contribute more to our economy and set their sights for the ORIGINAL American Dream.

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