U.S. homeowners shouldn't be able to deduct mortgage interest: report
With proposals from both U.S. presidential candidates to broaden the tax base, it seems likely that some cherished income tax deductions will need to be fiddled with, and one possible candidate is the tax deduction for mortgage interest -- a perk longed for by many Canadians.
The mortgage interest deduction requires the government to essentially write an annual cheque to everyone who owns a house, at the same time encouraging people to take even bigger mortgages. It will cost the U.S. government more than $90 billion this year.
Mitt Romney, for instance, suggested that such a change could be part of a plan that includes a 20 per cent cut in tax rates across the board. And the Democrats definitely want to appeal to middle America.
Cutting tax breaks is often highly progressive, hitting higher earners more than people earning less, the Wall Street Journal points out. That's because upper-income taxpayers are more likely to make greater use of benefits by "itemizing" deductions and listing them separately.
Politically though, it remains difficult to get rid of this particular perk, except that's exactly what both candidates should be doing, argues colmnist Froma Harrop.
The deduction "encourages taking on more debt, discriminates against renters, subsidizes one kind of spending over others and favors the upper incomes. It advances the questionable public goal of making more Americans into homeowners," she maintains.
"What we see here is social engineering gone haywire. The federal government should not care whether you buy or rent your residence," she adds, pointing out that Canadians enjoy no so such benefit but own just as many houses per capita.
If the deduction makes it through, would you support a Canadian party that tried to introduce a similar perk on this side of the border?
By Gordon Powers, MSN Money
Photo: Christa Richert
Posted by: SP | Oct 16, 2021 11:41:35 AM
They can dance around the issue as much as they like, but they will eventually have to start taxing corporations & the wealthy at a realistic level again. Especially if they continue to maintain the size and activity level of their war machine.
Posted by: Canuckguy | Oct 16, 2021 12:26:30 PM
No way should this perk come to Canada and kudos for the political parties for never(as far as I know) offering it as an election goodie.
I say that because I don't have a mortgage, heh. However in all seriousness, the government does not need a bleed on the tax revenues, learn from our American cousins.
Posted by: Paul | Oct 16, 2021 3:04:44 PM
No this should not come to Canada. If you look at Mortgage deductability, it's the biggest reason for the housing crash, as many bought pickup trucks, boats, and other toys, rather than paying down their mortgages. Now they have all the toys but no home. T'was a great way to get a tax deduction on the interest which would have been payable on the toys.
Posted by: Freedom 75 | Oct 17, 2021 5:57:05 AM
Paid off mortgage=no deduction. Monster mortgage debt=deduction. This encourages people to not pay off their mortgages as most Canadians attempt to do. It is another rung on creating different classes in a society. Renters vs Owners. Not for a Canadian, eh?
Posted by: Giovanni | Oct 17, 2021 7:54:48 AM
No. This is a bad idea as it encourages people to keep on more debt than they can afford. Ultimately it is a round-about way to further subsidize banks and other lending institutions. We should move on eliminating deductions - they are usually good for those that have money or high incomes in the first place. At the same time we should have a lower overall tax rate for everyone. Income tax should be based on income and not on ability to take advantage of deductions and loopholes. So lower tax and no deductions - that would get my vote.
Posted by: Mellie | Oct 17, 2021 10:30:32 AM
I don't think it's a good idea to bring that tax deduction here. I would suggest that the banks reduce our mortgages by lowering the interest that they make on Canadians buying a house. Why should any of us basically pay double the amount of the purchase price? It's insane. Credit card companies get their wrists slapped with charging high interest rates, but the banks bleed people dry.
We just went in to refinance our mortgage, and they just assume that you want 25 years amortization. We are trying to pay off our mortgage as soon as possible, so that the bank makes the least amount of money off of us.
Housing prices here are too high, and people's salaries are not growing as fast as our costs for everything. I think the banks should think of ways of getting people to buy houses (within their means) so that we don't have a generation of people who will never be able to afford to buy a house, as the aging population downsizes. We will end up with a lot of empty houses on the market, which will cause problems down the road.
Posted by: Western Guy | Oct 17, 2021 10:51:44 AM
@ Mellie
Credit cards charge around 19.9% interest while mortgages right now are easily obtainable for 3%.... At 3% you will only pay 142,263 on a 25 year mortgage. Thats not too bad at all. Would you personally loan somebody $10,000 from your bank and only expect $47 back each month?
Another thing to note is that housing prices flex around interest rates. If I can ensure a steady interest rate for the next 25 years I don't care if I buy a 100K house at 3% or a 61K house at 8%. Both will have a monthly cost of $474 for those 25 years. So the reason you are seeing high housing prices is because purchasers believe that interest rates will stay low for a long while into the future. Personally I know that as interest rates rise again the price of my house will fall but thats ok because I am paying it down with low interest (personally I have gotten 1% which makes my house a steal).
This tax deduction is interesting. It does seem somewhat regressive (larger deductions for higher income earners) and it does seem to push for larger mortgages (which obviously can have negative side effects) however on the other hand it also would stimulate the economy. All in I guess I would have to say no. Instead a tax deduction for gym memberships (social planning for healthly living) or perhaps a deduction for working more than 2080 hours in a year (promoting efficiency in the economy) would be in order.
Posted by: Mellie | Oct 17, 2021 11:15:50 AM
@ western guy
Who's paying $474/month on their mortgage? $474/month doesn't even cover rent here in southern Ontario. I'm going to say that most people are paying well over a $1,000/mth for their mortgages. Decent houses, condos, semis in the GTA area are well over $300k. With a lower mortgage amount, the bank isn't making as much. I don't know anyone who mortgages a house for less than $250k here.
I'm sure most people would like to move from the GTA, but where will they work??
Posted by: Dave | Oct 17, 2021 1:32:17 PM
Such a benefit is outright discrimination to those that rent or have worked hard to pay off their mortgages already. It would be a really bad idea for the country as a hole...although those people up to their eyeballs in mortgage debt would buy into it I am sure.
Posted by: Matt | Oct 17, 2021 3:31:28 PM
There is more to Canada than just Toronto....
Posted by: Matt | Oct 17, 2021 3:35:38 PM
On another note, this already is here somewhat in canada. Im a landlord and i can claim the interest and such on my income tax when i claim the revenue. You have to know the system or a decent accountant. Also the banks have lots of ways to help pay down your mortgage. The Biweekly option being one of them. Mortgages aren't really a debt... more of an investment.
Posted by: d.jarymy | Oct 17, 2021 4:11:28 PM
apples and oranges from canadian tax system and us system
Posted by: d.jarymy | Oct 17, 2021 4:16:11 PM
in the us they pay capital gains tax when they sell the home they live in in canada we dont. knowing how governments work i can see the us not telling the citizens the whole truth about the differences be tween the canadian tax system and the us one
Posted by: d.jarymy | Oct 17, 2021 4:18:53 PM
no i wouldnt support this deduction in canada
Posted by: d.jarymy | Oct 17, 2021 4:37:42 PM
froma harrop obviously doesnt do her research as matt pointed out some home owners do deduct (landlords) and the rest dont but we get to keep 100% of the gains if we live in our home for more than a year which encourages home owners to pay down there mortgage ie accrue equity.
Posted by: Financial Sam | Oct 17, 2021 6:34:01 PM
@ Matt
"Biweekly option pays down mortgage faster" lol.
Lets assume a 250K mortgage at 3% with 25 years left. By paying biweekly over monthly out of annual mortgage payments of $14,226.36 you will save $5.47 a year in interest......
Biweekly is just getting the consumer to pay a higher mortgage payment than the minimum (they calculate your monthly payments by dividing your monthly mortgage payment by 2 but then have 26 instead of 24 payments annually). If you increase your monthly payments by 13/12s you will have practically the same effect at the same cost.
If you can't understand this concept then I suggest not owning a home. Basic financial math is very handy.
Posted by: G Allen | Oct 17, 2021 6:52:57 PM
Not sure how this factors into the analysis, but remember that Canadians do not pay capital gains tax when we sell our principal residence and in the US thet do pay CGT.
Again, I don't know if this makes it a wash, but it would be helpful if the reporting was a bit more thorough.
Posted by: Gordon | Oct 17, 2021 9:17:18 PM
Actually G Allen, American's can sell their principal residence without paying any capital gains tax up to a profit of $250,000.00. So as long as you buy a house for $250,000.00 and don't sell it for more than $500,000.00 you don't owe any taxes on the sale.
Posted by: Cris | Oct 17, 2021 9:18:17 PM
Mat,
Try not to pay off the mortgage and see what kind of investment you have. If you cannot pay it off, you are just renting it from the bank, so there is no investment. You will have a certain amount you paid if you sell it and then, where will you live? Are you going to buy another unpaid investment?
Mortgages ARE DEBT, to all the morons who think otherwise. And no, following the US example is a very bad idea. What will responsible people have then? Those who don't live in investments. Those who live in houses paid off.
Posted by: arnie | Oct 18, 2021 1:46:51 AM
To Cris of course a mortgage is a debt but also works as a investment,I paid 130,000. for the house we live in it is now worth 650,000. Investment, not paying the landlords home off.
Posted by: Chris | Oct 18, 2021 9:53:21 AM
We've never had it in Canada so our political machine would never introduce something along these lines so personal opinion wouldn't really matter. We are a nation of higher taxes, not deductions.
What would be beneficial for Canadians would be having food, clothing, gasoline and other necessities reflect our high trading dollar. With an underperforming dollar, the Americans are still paying considerably less for too many things.
Posted by: joe | Oct 18, 2021 1:35:25 PM
We have to pay taxes on interest from savings. Not being able to deduct interest paid from our income is a double standard.