Wednesday, February 6, 2013

US Debt Reduction Sequester Tax Solution #25: Limit Interest Tax Deduction for High Income Taxpayers

Presently, all homeowners can usually deduct interest on their second vacation homes.

In addition, presently, all married taxpayers can usually deduct mortgage interest on their qualified residence on mortgage loans of up to a maximum limit of $1 million.

Clearly, high income taxpayers get the most advantage by far of the mortgage interest deduction.

And given that the country is faced with more than $16 trillion of debt, which under any reasonable projection is scheduled to increase substantially each year, here on out, it only makes sense that high income taxpayers fairly do their part, and be required to reduce the massive interest deduction they now can take advantage of.

And it's not just that high income taxpayers now get substantially more mortgage interest deductions than all other taxpayers.  They also get their tax benefit on their much higher mortgage interest deduction at a much higher marginal income tax rate, which will be a top income tax rate of 39.6%, starting in 2013.

Thus, I have two recommendations on changes to itemized deductions for mortgage interest.

First, no taxpayer with Adjusted Gross Income above $250,000 can deduct any interest on his or her second vacation home.

And second, a taxpayer with Adjusted Gross Income above $250,000 will be able to deduct mortgage interest on mortgage loans up to a maximum limit of $500,000, a reduction from the present maximum limit of $1 mil.

And consideration should be given to staggering in this loss of interest deductions as Adjusted Gross Income increases from $250,000 to $1 mil.

All of the Tax Revenues generated from the reduction of this high income interest tax deductions will be used to reduce the US Debt.