Mortgage interest deduction in focus

Proposed legislation has plenty of plusses...and minuses, too. Photo: Flickr

MANILA, June 6, 2013—Given the current economic system in which we operate, the periodic boom-bust cycle in business and real estate will continue to haunt us and our governments indefinitely. The housing bubble-burst is one event that hurt many homeowners and international investors alike. Economists from all schools of thoughts have offered a bewildering variety of solutions to both businesses and goverments like. On the other hand, governments themselves are looking for and sometimes finding ways and means to solve the problem brought about by the recent real estate and economic catastrophes faced to varying degrees worldwide.

In the U.S., a measure proposed by U.S. Rep. Keith Ellison (D-Minn.) would convert the mortgage interest deduction to a credit. His “Common Sense Housing Investment Act would do exactly that,” according to information obtained from the website, which further notes that “instead of itemizing in order to claim the deduction, homeowners would simply claim a non-refundable 15 percent tax credit. According to Ellison,” the entry continues, “the move would enable up to 60 million Americans to claim the credit versus the 43 million that currently take the mortgage interest deduction.” 

In view of these issues, it is good for legislators to figure out ways to approach tax treatments and economic remedies with both the government and citizens in mind, if that is indeed even possible. New, innovatie ideas on deductions, exemptions and the complications involved in paying back taxes may go a long way toward improving tax laws and tax legislation in the future. 

Like any proposed tax revisions coming from the government, Ellison’s proposal, and indeed all proposals, should also be subject to massive scrutiny and opened to comment by the public. Admittedly, Ellison considered his proposal’s impact on constituents and the public as a whole. 

However, we cannot discredit the fact that many laws were scrapped because of possible negative after-effects. This one could face a similar fate, given the general attitude held by a great many that “the road to hell is paved with good intentions”. 

According to proponents of the bill—should it becomes a law— claim the legislation can bring life to the long-sluggish and lagging housing market both in the U.S. and in other hard-hit countries. We doubt, however, that the market will magically reinvigorate simply with the passage of this law or something similar. The resulting increased government taxes on property will likely increase the prices of real properties as a whole. 

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Of course, real estate agents and companies will layer their own traditional overhead costs on top ot these taxes, further raising the price of each transactions. At the end of the day, prospective buyers may simply ignore the offered real properties due to price, bringing us full circle back to late 2007 before the real estate debacle became self-evident. 

Another problem with the proposed bill is the increased influence of the Federal government on the real estate industry. Because of the changes to be effected by the proposed law, the government might end up imposing a long-term tax impact on existing and future homeowners. It is undeniable that the thrust of the government to “pump up” the lifeblood of the State by way of increased taxation on real estate will hurt investments and respective economies waiting to be awakened with more investors and risk-takers expected (or rather hoped for) in different states and countries. 

Furthermore, at least in the U.S., this may have a severe impact on state and local tax systems as well, as many states and particularly state and local school districts depend on local real estate taxes to support elementary and secondary education. 

Crossing the Pacific, the Philippines is a growing economy, and its property sector attracts many investors. While there remains a prohibition against foreign ownership of lands, the path to citizenship is much easier here. 

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In this island nation, mortgage taxes and government controls on the real estate sector remain low and weak. Unlike the situation in in the United States, one can freely transact or mortgage his property with minimal government regulation here. This special feature of the Philippines makes the country a favorite with international property investors, though admittedly there is still a lot to look out for in terms of operation, security measures and numerous additional issues that we know remain to be addressed in the very near future. 

Clearly, wherever one lives, real estate, home ownership, and the taxation of both will continue to remain a moveable feast as this century tries to extricate itself from the current economic morass and move on to better times.


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Jona Jone

Jona Miranda Jone brings her expertise to the Communities page as a financial writer who is also an expert on mortgages and other transactions concerning property ownership.  Jona now lives in the Philippines, where she works as a freelance writer.

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