The President's Advisory Panel on Federal Tax Reform

Interesting new developments today from The President's Advisory Panel on Federal Tax Reform.  The most intriquing are the changes proposed for  mortgage interest.  The documentation states that Americans currently in a mortgage will not be affected.  However, for those in a high tax bracket and not currently in a mortgage, the affect on them could be significant.  To determine how you might be affected, identify which  tax bracket you are in.

I would tend to agree that the general thinking of most folks today is to stretch themselves to buy as much house as possible.  This allows people to have a maximum mortgage interest deduction each year.  However, under the proposed tax reform changes, mortgage interest deductions will essentially be capped.  Here's an example from the CNN website...

Take a new homeowner who pays $18,000 a year in interest on a $300,000 loan and itemizes his deductions on his federal return.

Under the current system, if he were in the 25 percent tax bracket, he'd reduce his taxable income by $18,000, for tax savings of $4,500 (18,000 x 0.25).

Under the panel's proposal, he'd only save $2,700 (18,000 x 0.15)

That assumes the $300,000 loan doesn't exceed the mortgage-interest cap.

But if he were in the 15 percent tax bracket, he'd see no difference under either scenario.

So, basically, if you are in a tax bracket higher than 15%, the tax savings through your mortgage interest is reduced.

There are a lot of other high-profile changes proposed in the plan.  I would encourage anyone to read the document.