A former mortgage professional writes:
I spent 10 years in the mortgage business… and I still cannot figure out why the interest on second mortgages and lines of credit is tax deductible? I used to see people buy boats and Corvettes with their lines of credit and it frosted me that all of us tax payers were subsidizing the interest. This area must be addressed. I think that a tax deduction for the interest paid on a mortgage should be limited to the primary mortgage only.
June 14th, 2010 at 4:03 pm
Agreed. A home is reasonable, a second home is a luxury.
As recently as the 70’s credit card interest was deductable. The policy was/is to get people to spend by buying on credit. Of course, until the runaway inflation of the late 70’s, most states still had usery laws so interest was capped at generally something under 10%. (I may be off a bit on dates, but facts are accurate.)
June 15th, 2010 at 10:10 am
Without this tax write off we would not see the suburban sprawl to the level it is today. When this tax write off was enacted after World War II, it was only homeowners in the suburbs were elgible for the tax write offs. Homes in Philadelphia and other cities on the otherhand were not given such tax breaks to their homeowners. Would be homeowners would be turned off by cities and opting for the suburbs.
June 27th, 2010 at 10:52 pm
As I recall from my equity line first begun 25 or so years ago, interest was only deductible relative to the equity you had paid down on the house. My initial loan was $28,000 or so in 1976 and with about $5,000 of equity paid off, I could have only deducted interest at that level, even though I could have borrowed up to $30,000 at the time. That limit went away. I believe it became an option once credit card and auto finance payments were not deductible. Thereafter people financed cars and consumer good from home equity where the interest would be deductible. Organizations like Consumer Reports warned people to only use equity lines for capital improvements to homes, things that added value. I stuck to that approach, but others didn’t. I once told the auditor of my organization’s accounts that I wasn’t taking advantage of my interest deduction because I’d not used my equity line. I didn’t have any “good debt.” He told me “There is no good debt.”