There’s a move afoot in Washington, D.C., to scale back the mortgage interest deduction, a valuable and popular tax break that has benefited middle-class homeowners for decades.
Tinkering with the mortgage interest deduction isn’t just bad news for homeowners, it’s a poorly timed idea that could have a negative impact on a subdued housing market that is working toward a recovery.
Charged with finding ways to cut government debt, members of the federal Deficit Reduction Commission are considering a recommendation to pare down the mortgage interest deduction and are expected to vote for or against the final report by Friday, Dec. 3.
Among the suggestions:
- Restricting it to principal residences only; second homes and home-equity loans would no longer qualify.
- Capping the qualifying mortgage amount to $500,000 instead of the current $1 million
- Converting the mortgage interest deduction to a 12 percent non-refundable tax credit.
The mortgage interest deduction is not only one of the simplest provisions in the tax code, it is also a powerful incentive for home ownership. The suggested changes would not only make homeownership less appealing to buyers but could hurt existing homeowners by eroding home prices and values by as much as 15 percent, according to the National Association of REALTORS®.
“Any further downward pressure on home prices will hamper the economic recovery, raise foreclosures and hurt banks’ abilities to lend and likely tip the economy into another recession resulting in further job losses for the country. It will effectively close the door on the American Dream,” said NAR President Ron Phipps, in a statement today.
Read this NAR blog post to learn more about this latest challenge to the mortgage interest deduction, a vital tool for homeownership and the overall economy.