Save the Mortgage Interest Deduction!
President Obama’s budget proposal last week attracted more than a few passionate voices from real estate who oppose elements that would limit itemized tax deductions, including the mortgage interest deduction that enables homeowners to deduct part of their mortgage interest from their overall tax bill.
In short, the budget would reduce the value of itemized deductions to 28% for married couples with incomes over $250,000 and individuals with income over $200,000. The current value of deductions could be as high as 33-35%, depending on the tax bracket the household is in. The reason it’s so vehemently opposed by real estate industry groups like the National Association of Realtors is that it’s a vital component to the housing recovery – and it feels like a penalty being put on responsible homeowners.
One of the perks of owning a home has been the ability to deduct a portion of the money paid in mortgage interest each year from an owner’s tax bill. This is part of the reason ownership makes more financial sense than renting for many families over the long-term.
Now feels like the worst possible timing for a change like this. Removing this benefit that is highly regarded by many would-be homeowners as a perk of owning versus renting likely would have a negative impact on the economic recovery.
Also, as NAR points out in a letter opposing the budget proposal, the nation’s homeowners already pay 80-90% of U.S. federal income taxes. Raising taxes on them now could seriously wear down demand, taking home values with it at a critical time for the overall health of the housing market.
Many might argue that the value of the change on the overall economic state of the nation far outweighs that of the individual homeowners who would be affected. But, the fact is that by eroding home values, the nation is affected in the end anyway. In addition, perception is a highly valuable (or dangerous) thing when it comes to real estate markets. Just the very perception that homeownership may have lost some of its luster in the often-cited tax benefits by new buyers has the potential to do damage.
And we can’t afford to lose any momentum in housing demand.
NAR is fighting against this proposed change, and so am I. Let’s save the mortgage interest tax deduction for the nation’s homeowners and incoming buyers. Now is not a good time for a change like this. Obama may not see it, but the deduction is vital to the stability of the nation’s housing markets.