Are You Ready For The Removal Of The Home Mortgage Deduction?


For the longest time, homeowners can deduct the interest portion of their home mortgage payments from their taxable income. This is a serious tax deduction and provides a lot of tax relief to the typical American middle class household. Not only do you get to pay down the cost of buying your own home, you also save on your taxes.

Unfortunately, if proposals being floated at the federal level pan out, the days of this gravy train might possibly end soon. I say ‘possibly’ because the proposed deductible cuts are just proposals at this stage. No one with half a brain can say that kicking the American middle class in the gut with the removal of the home mortgage deduction makes great political sense. In fact, it might turn out to be as politically suicidal as messing with Social Security.

Be that as it may, America’s double digit trillion dollar debt has many Washington officials on edge. Considering the huge numbers involved, even if America was able to lower the interest rate on its debt, it can still be a very crushing debt load to deal with. And we’re not even factoring in the trillions of dollars of Social Security and Medicare obligations which will balloon as a large chunk of America’s population ages.

Given these dire fiscal straits, many policymakers and politicians have begun talking about the previously unthinkable-removing tax loopholes and deductions so the US can have more cash to either engage in another stimulus or start putting serious bite marks on its mammoth deficit.

What can you do, as an average homeowner, do in light of this possibility. There are actually a few defensive moves you can take.

Lock in by refinancing at rock bottom fixed rates

Thanks to the Federal Reserve’s deficit boosting quantitative easing, mortgage rates have sunk to rock bottom levels. You can refinance your home at these low rates so your monthly rates sink. You have to compare your lower monthly mortgage payment’s savings to the amount of money you’d have to pay on your taxes due to the removal of your home mortgage deduction. The savings have to be dramatic for refinancing to be worth your while.

Incorporate and reap the tax advantages of deductions

Depending on the type of work you have, you might reap some tax advantages by incorporating as an S (pass through) corporation or organizing as a Limited Liability Company (LLC). You can write off quite a bit of your expenses. Again, make sure that the savings you get from this this not only offsets but exceeds your tax savings from your home mortgage deduction.

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