Replace All Federal Taxes on Income with the Fair Tax Act , HR 25

Mortgage Payments

Can anyone provide information or thoughts about the proposed tax treatment of a mortgage payment on a new house? Would be entire contribution to principal be taxable? Or would there be a formula dividing that into consumption and saving? Would the interest be considered a service and thereby taxable? Does H 25 cover the details on this subject?

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Comment by Ed Sarlls, III on April 21, 2009 at 8:41am: There are two issues being raised here. 1) FairTax on the house, and 2) FairTax on the mortgage service.

For the FairTax on a house purchase, if the home is new, the FairTax is included in the price. If the home is used, the FairTax was paid by a prior owner and is not added again in the price.

For the service provided by the Mortgage lender the FairTax looks at the difference between the interest rate paid by the borrower and the cost of funds to the lender. This difference is the service provided and the FairTax is applied to this portion of the interest. So the principle and part of the interest are not taxed but part of the interest is taxed. See section 511 and Chapter 8 of the FairTax bill for the details: http://thomas.loc.gov/cgi-bin/query/z?c111:H.R.25: