End to mortgage interest deduction would hurt homeowners, real estate industry
Special to the Legal News
Published: November 20, 2012
The federal government has a big deficit on its hand and is facing some tough decisions on how to reduce that deficit.
One proposal on the table would eliminate or reduce the popular homeowner mortgage interest tax deduction.
For a century homeowners have been able to write off their mortgage interest on their federal tax returns, a substantial savings for many people.
The interest deduction, if entirely eliminated, would add $94 billion to the federal government’s coffers next year, according to the congressional Joint Committee on Taxation.
“It’s a big number so you know it’s certainly going to be looked at,” said Carl Horst, spokesman for the Ohio Association of Realtors, which opposes any reduction in the interest deduction.
But eliminating or limiting the tax break would also likely stifle an already sputtering housing recovery, according to most observers.
“The deduction is a key incentive to keep housing accessible and affordable. It’s an incentive to attract buyers,” said Horst. “It would hurt any current homeowner or anyone looking to buy a home. It would drastically increase the cost of housing.”
He said groups such as the Ohio Association of Realtors will continue to oppose these changes.
“The industry as a whole is opposed to it,” said Horst. “It’s one of the key issues Realtors will fight long and hard to keep in place.”
The national average amount of mortgage interest deduction claimed per household is $3,343, according to Forbes magazine.
Approximately 34 million homeowners take advantage of the tax break, according to the Joint Committee on Taxation. The average homeowner saves about $600 annually with the tax break.
A 2011 Gallup poll found that 61 percent of Americans polled oppose eliminating the home mortgage interest tax deduction.
President Barack Obama said while campaigning that he would only favor eliminating the tax break for families making $250,000 or more.
The tax break was first offered in 1913 after the modern federal income tax system was enacted and all interest was made deductible.
This is not the first time the mortgage interest deduction has faced elimination or limits.
“(I)n the 1990s, there were proposals to replace the income tax system with a system based on taxing consumption, and these plans proposed eliminating the home mortgage interest deduction. These plans died out, however, over arguments about how the removal of the tax deduction on mortgage interest would affect the housing market,” according to Realty101.com.