Where’s our deduction?

When we completed our income taxes this year we noticed something strange. We were unable to deduct mortgage interest or property taxes. Why have these deductions disappeared?

Not to worry, deductions for mortgage interest and property tax write-offs remain in place. Not only that, but the deduction for mortgage insurance costs also remains in place, at least until the end of this year. What’s changed is how mortgage costs and the standard deduction compare.

When borrowers look at the cost of real estate financing they are typically comforted by the notion that mortgage interest is generally deductible. In most cases, you can deduct all of your home mortgage interest. How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds.

Points, property taxes and mortgage insurance premiums may also be deductible, although — as is always the case with taxes — subject to an assortment of potential limitations and exceptions.

In recent years, however, several trends have reduced the value of real estate write offs.

First, we owe less mortgage debt. According to the Federal Reserve Bank of New York, mortgage debt in 2008 hit $9.99 trillion but fell to $8.74 trillion at the end of 2015.

And interest rates have slipped. The average annual mortgage rate in 2008 was 6.03 percent versus 3.85 percent in 2015, according to Freddie Mac.

Combine a trilliondollar-plus reduction in mortgage debt with interest rates that are a third lower and the result is simply less interest to write off.

But less debt and lower interest costs are not the whole story. The standard deduction in 2008 was $5,450 if single and $10,900 if married and filing jointly. By 2015 the standard deduction had increased to $6,300 for singles and $12,600 if married and filing jointly.

Let’s imagine that you have a new $175,000 mortgage at 3.85 percent. In year one, interest will amount to $6,682. Throw in property taxes, mortgage insurance plus state income taxes and many borrowers might not have $12,600 in itemized deductions. For them, the standard deduction could be a better option, especially in the seven jurisdictions where there is no state income tax and the two states that do not tax wages.

Now imagine the same $175,000 mortgage at 6.03 percent. Interest in the first year will cost $10,494. Add in real estate taxes, mortgage insurance and state income taxes and the result will readily top the $10,900 standard deduction from 2008.

Every April 15 renters across the country once felt the pain of not owning a home when they wrote out their checks to the IRS. These days, not so much. “The lack of tax savings is just one of numerous reasons why homeownership is the lowest it has been in decades, and we believe homeownership is headed lower,” John Burns of John Burns Real Estate Consulting asserts.

Bottom line: the mortgage deduction isn’t gone. It’s just that mortgage rates and debt levels have fallen so far that in some cases the standard deduction is a better option.

Peter Miller is author of “The Common-Sense Mortgage.” Email questions to peter@ctwfeatures.com.