Mortgage Interest Deductions – Eliminated or Not?

Lately, REALTORS®  have been getting a lot of questions asked about mortgage interest deductions – will they be eliminated? Larry Matos, President and Broker for CENTURY 21 M&M says, “If the mortgage interest deductions were to be eliminated, there wouldn’t be an incentive for people to buy a home. In this economy, with as many lobbyists  in Washington fighting against this proposal – it will not happen”.

The ‘mortgage interest deduction’ is the cornerstone of the United States housing policy; If you own a home, you get a tax deduction on your mortgage interest. This makes owning a home more attractive, and supporters believe helps stabilize neighborhoods.

But the mortgage interest deduction could end up on the chopping block as the government tries to balance the budget and deal with the country’s deficit. Some people argue that the policy should be changed because it doesn’t really encourage home ownership, and, the policy isn’t giving enough of a tax break to lower-income families.

According to the Wall Street Journal, “Deficit Plan Wins Backers” dated December 2, 2010, “Obama administration officials said they would harvest many of the [White House Deficit] commission’s ideas as the president assembles a budget plan for 2012. They pointed to cuts in defense spending, limiting tax deductions [including the mortgage interest deduction] and a broad overhaul of Social Security as areas to pursue”.

Despite all of the talk, it will be difficult to revamp a tax deduction that has been around for almost a century. According to Guy Cecala, publisher of Inside Mortgage Finance, “REALTORS, homebuilders, everybody who has a vested interest in preserving this [mortgage interest deduction], have a very strong voice on Capitol Hill. They’ve done a pretty good job of keeping everybody’s hands off…”

Larry Matos, President and Broker for CENTURY 21 M&M states, “The mortgage interest deduction is probably most helpful to people who have purchased their homes recently, due to the fact that a large portion of each monthly payment goes toward paying the interest. As the loan matures, the interest portion decreases and the principal portion increases. We cannot afford for that benefit to go away.”

For those earning between $40K and $75K per year save only about $523 and for those earning over $250K the savings averages about $5,459. Some consumer groups are recommending a yearly tax credit of up to $5,000 to moderate and low income families, instead of the ‘mortgage interest deductions‘.

However, the Obama administration’s proposed 2012 budget would lower the value of the mortgage interest deduction for families with household incomes of more than $250K. But it should be noted that similar deduction eliminations have been proposed in the two previous budgets to no effect.

NOTE: As with any questions of this nature, CENTURY 21 M&M Real Estate Agents refer clients to their tax attorney or accountant for the answers.