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November 29th, 2012

Is Romney’s mortgage-deduction idea winning in Washington?

by Peter Miller


DC-ResizedEarlier this month, HSH.com published an article called “Real estate’s fiscal cliff: 5 items to watch out for.” The number one item on that watch list was the pending expiration of the mortgage interest deduction. The deduction was a highly debated before and during the election, yet still remains unresolved.

Since the topic is still under intense debate, we wanted to examine how former-governor Mitt Romney’s idea for solving the deduction debate would impact American homeowners.

“In terms of bringing down deductions, one way of doing that would be say everybody gets — I’ll pick a number – $25,000 of deductions and credits, and you can decide which ones to use,” said Romney in the second presidential debate. “Your home mortgage interest deduction, charity, child tax credit and so forth, you can use those as part of filling that bucket, if you will, of deductions.”

The $25,000 figure wasn’t the only number suggested by Romney. He also said that his bucket of deductions could be limited to just $17,000–a figure which would impact a far larger number of taxpayers–especially those with lower mortgage rates and thus smaller deductions.

Romney’s plan

Under the Romney plan, there would be a cap on deductions. This limit would apply to such things as mortgage interest, charitable deductions, medical write-offs and the items generally found on Schedule A with IRS Form 1040. If your total deductions were $20,200 and the write off limit was $25,000, than all of your deductions could be used. However, if your deductions amounted to $30,000, then $5,000 could no longer be deducted.

The Romney concept has actually gained some traction in Washington for two reasons:

  1. The Democrats can point to the original author of the idea and condemn Republicans in the next election for effectively raising middle-class taxes
  2. The idea does not touch dividends or interest, sources of income which Republicans want to protect

The idea may not fly

While Romney’s bucket idea has certain superficial attractions, it is not clear that the idea can pass in Washington. For instance, the bucket approach would not only impact the ability to write off mortgage interest, it would also impact charitable deductions. Given that many charities exist because of their ability to obtain funds which will ultimately be tax-deductible, the bucket approach would decimate many charities and their ability to deliver services to local communities.

The mortgage interest deduction has been virtually untouchable in Washington because no politician wants to be associated with the end of the deduction.

In fact they’re right, at least in a literal sense.

It’s difficult to imagine that a bucket plan will go through.  The $25,000 level, let alone $17,000, will be too low for political acceptance. But a higher bucket limit, say $50,000, might be acceptable because it will impact fewer homeowners.


Meanwhile, the discussion of the Romney bucket idea means conversations are being diverted from other tax issues, such as higher rates and an end to the “carried-interest loophole” which allows hedge-fund managers to be taxed at just 15 percent.

One Response to “Is Romney’s mortgage-deduction idea winning in Washington?”

  1. danny lee Says: November 30th, 2012 at 9:57 pm

    I will be selling my house – this is getting to be too much, retire and move to another country this is getting to be ridiculous. This country is joining Greece.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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