Preserve, Protect and Defend the Mortgage Interest Deduction

What is the fundamental issue?

Individuals are permitted to deduct mortgage interest paid on mortgage debt of up to $1 million. The deduction is available for interest on mortgages for a principal residence and one additional residence. The $1 million limitation represents the combined allowable debt on two residences. Mortgage interest on up to $100,000 of debt on home equity loans or lines of credit also qualifies for the deduction. 

As part of its FY 2011 budget, the Administration has proposed limiting the value of the MID for upper income taxpayers by, in effect, converting the deduction to a 28% tax credit for those individuals who are currently in the 33% or 35% tax brackets. Individuals with incomes below $250,000 would generally not be directly affected by this proposal. 

I’m a real estate professional. What does this mean to my business?

The mortgage interest deduction (MID) is a remarkably effective tool that facilitates homeownership. While only about 30% of all taxpayers in any given year itemize their deductions, more than 3/4 of homeowners with a mortgage utilize the deduction each year. 

NAR Policy:

NAR opposes any changes that would limit or undermine current law. 

Legislative/Regulatory Status/Outlook:

Currently, taxpayers in the 33% and 35% income brackets are able to reduce their taxes through deductions for mortgage interest payments, charitable contributions, local taxes and other expenses by 33 and 35 cents, respectively, on the dollar. Under the Administration’s proposal, these individuals would only be able to reduce their tax bill by only 28 cents on the dollar. The Administration estimates that the change would raise $318 billion over the next 10 years. 

While NAR has supported and applauds the efforts of the Obama Administration in taking aggressive measures to stabilize both the housing market and the nation’s economy, NAR has aggressively expressed its opposition to the Administration MID proposal. NAR believes the proposal is ill-timed and ill-advised. It would have adverse impact on housing values and the pace of economic recovery. 

Most members of Congress have also opposed the budget proposal. To date, limits on itemized deductions have not been part of the legislative agenda. Note, however, that in August 2009, the Congressional Budget Office (CBO) has released its annual report identifying possible revenue sources. These included several new limitations on MID. The CBO report is NOT legislation; it is more like an academic exercise to explore options. Nonetheless, the report cannot be disregarded.

Send a message to your Representative by going to the Realtor Action Center website.


One response to “Preserve, Protect and Defend the Mortgage Interest Deduction

  1. If the mortgage deduction is eliminated, the motivation to own a home would fall, especially where home values are not appreciating. Special interest groups will oppose even the smallest change.

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