Mortgage Deduction Maximized Under the Fair Tax

By Merrill Bender

In the arena of tax policy and tax reform the income tax deductions for Mortgage interest seems to be cast in stone and never to be touched. This is the one tax deduction every homeowner knows to include in his tax return and a benefit that the President has asked his tax reform panel to keep. There is only one tax reform package that meets this goal and then maximizes it - The Fair Tax Legislative package.

The actual benefit has diminished under the archaic income tax code. As income tax brackets have lowered and interest rates have lowered so has the amount of dollars you get back from your mortgage interest deduction. The Tax payer in a 25% federal tax bracket faithfully files a return on or before April 15th to get a deduction which only gives him back $250 of his own money back per $1,000 spent in Mortgage interest. When upper tax brackets used to be 50% to 70 % Americans would get back even more. However, the 7.65% Americans pay out in payroll tax provides no deductibility or return at all.

In addition, American families still have to pay the mortgage principal out of after tax dollars. For many middle class Americans that includes a 25% federal income tax and a 7.65% payroll tax for a total federal tax bite of 32.65%. On a $100,000 mortgage at 6% a family might get back $1500 with a mortgage interest deduction but you get no deduction for the principal paid. You pay that with after tax dollars.

There is a Tax Reform package in Congress that would maximize the Mortgage deduction in a totally new way with added benefits for families and home ownership. Under the Fair Tax, American workers get 100% of their paychecks with no payroll tax or income tax taken out. The 32.65% they had subtracted each week is now in their pockets to help pay the principal on their mortgage or any other important family needs. You end up with the income tax equivalent of a 100% deduction of principal and interest by replacing the income tax and the IRS with the Fair Tax.

The Fair Tax reform package is well documented and researched on the Fair Tax website http://www.fairtax.org/. It has been reintroduced in the 109th Congress as HR25 and S25. The Fair Tax legislative package first eliminates the current income tax system on American families and American business. Elimination of hidden business taxes will first cause prices to drop 22 to 25%. The Fair Tax than adds in a federal retail sales tax of 30% (equivalent to income tax of 23%). American consumers will pay about the same as they did before but take home a much larger paycheck. The Fair Tax is revenue neutral, bringing in the same revenue as current income taxes, Social Security taxes and Medicare taxes and estimated to grow the Economy 10.5% in its first year.

If you want tax reform that gives you more take home pay and a maximized Mortgage deduction for interest and principal than call your Congressmen and Senators and tell them you support the Fair Tax Legislative package HR 25/ S25. For more information visit http://www.fairtax.org/ and read the FAQ section.