Could the Mortgage Deduction Get Chopped?

As the U.S. government looks under every rock for more spending cuts, here’s an intriguing thought: What happens if Washington takes this opportunity to take down the tax break on mortgage interest?

 “We believe there is a growing risk that the mortgage interest deduction could fall victim to the deficit reduction mantra,” MF Global said in a research note.

We know fiscal asceticism is the new black, but Congress doesn’t have the guts to take on the popular mortgage tax break, which defenders say makes the cost of homes within reach for Americans. The real-estate and mortgage industries also would fight tooth or nail if the deduction moves to the chopping block.

“At this point, we view this more as a headline risk than a real threat,” MF Global said in its note. “Yet curtailing the mortgage interest deduction has been part of President Obama’s budget proposal and it was one of the bi-partisan deficit reduction commission’s recommendations. So we cannot rule out these threats.”

True, everyone from the International Monetary Fund to the Tax Policy Center to the White House fiscal commission have called for the U.S. to cap, redesign or simply get rid of the deduction. The IMF called the mortgage tax break  “expensive and regressive.” But this comes up every few years or so, before everyone realizes it’s impossible to hack away at a cherished part of the tax code.

Critics of the mortgage tax break says the country simply can’t afford to turn down billions of dollars a year for federal and state coffers. The mortgage deduction also may push people to take on risky mortgage they can’t afford, say critics, and isn’t equitable because the deduction applies to taxpayers who itemize their deductions – and benefits higher-income households more.

The National Association of Realtors (NAR) has shown increasing alarm over the possibility of eliminating the deduction over the past months. Last year, the NAR declared eliminating the deduction would decrease home values by as much as 15 percent. The NAR also asked its 1.1 million members to contact their senators and congressmen and voice their concerns over the potential of eliminating or altering the deduction.

As a Homeowner and a Member of the NAR I sent the following letter to my congressmen asking for his support to urge Congress to preserve, protect and defend the mortgage interest deduction before they whittle it down at the expense of other more expedient budget cuts.

Consider the consequences if homeowners and buyers lose the time-honored and cherished mortgage interest deduction. This tax deduction built the dream of homeownership in America. The bottom line is you may well lose personally, and for certain so will your business if it is eliminated or significantly reduced in any way.

We must speak loudly and clearly with one voice to ensure the further recovery of our economy and the housing market and educate every legislator about how much the mortgage interest deduction matters to us.  Therefore, I urge everyone to take action to Preserve, Protect and Defend the mortgage interest deduction.  No economic recovery is possible without a vibrant housing market.

Please Take Action Today!

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