Quote:
Originally Posted by Shazam
Yeah the mortgage interest deduction doesn't work like that.
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My point is there shouldn't be a mortgage interest deduction at that high of a threshold since it will be for the uber rich. Esentially these super rich are being subsidized to buy a principal home.
But here is my understanding of how it works then:
Let's say you are fortunate enough to qualify to buy an upscale house for 1.2 million. You borrow 1 million and put down 200K. The interest (not the principal) part of your payment is deductible. Lets say you have 30 year fixed 5% mortgage rate (with that$1million loan). That works out to a 50K/year in interest. If you qualify for a 1 million dollar loan, then you are probably in the 35% tax bracket (the highest). So out of that 50K, you can deduct ~18K which is the amount that reduces your taxable income in that year.
Or another way to look at it is that a 5% mortgage is net after tax (assuming the highest tax bracket of 35%), a real interest rate of 3.25% with the gov't subsidizing the 1.75% of your interest rate.
A $20million mortgage at 5% will get you to the max mortgage interest deduction of ~$1 million in yearly interest with you being on the hook for only 650K and the taxpayer subsidizing the rest: $450K of free money to encourge you to buy a home.
So is this a good tax policy? People who can afford a 20 million dollar loans getting govt subsidies? This is as egregious as it gets.