Effect on Families
A Looming Tax Increase
From working families to empty-nesters, the Mortgage Interest Deduction (MID) represents real value and real dollars saved every year. Depending on your income level, the Mortgage Interest Deduction can save your family up to 43% on federal taxes. Below are a few examples of what the elimination of the Mortgage Interest Deduction would mean for a household's bottom line.**
Where do you fit in? How would your family be affected?
The Johnson Family - Chicago, IL
Mr. and Mrs. Johnson both work full-time at a local manufacturing plant to provide for their family. Together, they have an income of $75,000, and are working hard to provide their two children with opportunities to enjoy a better and more prosperous life than they have had. They love their modest, three-bedroom home with a mortgage of $195,000 in suburban Chicago. They also appreciate what their local community offers their family.
With deductions for child care, charitable donations and state and local taxes, the Johnsons are able to itemize deductions of their federal tax return.
Their estimated annual mortgage interest payment is $10,663.
If the Mortgage Interest Deduction is eliminated they will pay an additional $1,643, or a tax increase of 43%.
If the Mortgage Interest Deduction is changed or eliminated, the Johnsons fear they might lose their home and the safe neighborhood to raise their children. Providing their children with a better life has always been their dream, but it would be much harder without the MID.
The Vasquez Family - Arlington, VA
The Vasquez family enjoys their suburban Virginia home and love their jobs working for the federal government. Their $150,000 in combined income has enabled them to purchase a quaint home with a mortgage of $275,000, in a great neighborhood, with an excellent school for their teenage daughter. The Vasquez family is trying to save as much money as possible to retire comfortably and provide their daughter a quality college education.
Currently, they are able to deduct $14,939 of interest on their annual tax filings.
If the Mortgage Interest Deduction is eliminated, they will pay $3,735 in additional taxes.
Understanding the importance of a quality education for their daughter, the Vasquez family fears that her future is in jeopardy if the Mortgage Interest Deduction is changed or eliminated.
The Anderson Family - Pasadena, CA
The Anderson family recently purchased their retirement home in an All-American town in southern California. With no children, the Anderson family used their $250,000 income from their small business in Orange County to prepare for a fun-filled retirement. They have been saving up for years to purchase their dream home with a mortgage of $300,000 to celebrate the remaining years of their life together.
Currently, they are able to deduct $16,536 of interest on their annual tax filings.
If the Mortgage Interest Deduction is eliminated, they will pay $4,010 in additional taxes.
The changing or elimination of the Mortgage Interest Deduction could dramatically impact their retirement plans. The loss of money might force them to continue to work instead of enjoying their retirement.
* All scenarios are based on a 30-year mortgage with a fixed interest rate of 5.86% which represents the weighted average interest rate for all existing fixed rate mortgages in the U.S.. Mortgage balances represent the value of the average mortgage for the Chicago, Washington DC and Southern California Metropolitan Statistical Areas respectively. Estimated tax liabilities are based on 2009 tax rates and deductions. Information provided by Rosen Consulting Group for Leading Builders of America. All pictures and scenarios of families are fictional and for explanation purposes only. They do not represent actual families.