Oil Prophets

Winter 2013

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Homeowners Dodge Budget Bullet The mortgage interest deduction (MID) cost the US Treasury $88.8 billion in 2011, making it the second largest tax break for individuals. That is precisely why the Congress has its sights set on it. However, there is much debate about how to reduce its costs to the Treasury and by how much. No matter what happens, reducing the MID will lower some house prices. That being said, how the Congress reduces the MID will determine how much and how many houses lose value. And since so many of us own a home, sell homes or build homes, the MID will not be singled out for special treatment. Rather, the Congress will cap or phaseout the value of all deductions, and in that way avoid favoring one deduction over another. While there are several possible approaches, the one passed into law early this month phases out itemized deductions for households with incomes over $300,000. While at first blush this may appear to be quite damaging, I think homeowners, realtors, builders, and the entire housing industry have all dodged a bullet and should sleep well for quite a while, or at least until the Congress reopens debate on the tax code sometime in the future. 24 OIL PROPHETS WINTER 2013 Phasing out Schedule A deductions for couples with incomes over $300,000 limits the impact to buyers of only the most expensive houses. For example, with a 10% down-payment on a $1,500,000 house, mortgage interest would be $54,000/year, property taxes would average $16,500, and insurance would be about $8,000, totaling $78,500 in annual housing-related expenses. To finance that mortgage, the $78,500

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