Mortgage Interest Deduction
Despite a partial resolution of issues around the fiscal cliff budget talks, changes to the mortgage interest deduction (MID) is still among major issues being considered, probably to be debated in the spring. Whether you are a Realtor®, a lender, an attorney or broker, here are a few things that will help you inform your clients about the importance of the MID:
* The MID is one of the most valued deductions in the U.S. tax code and, in many cases, the very thing that enables homebuyers to afford a house.
* Mortgage interest includes interest paid on loans to purchase a home, home equity lines of credit and construction loans. Homeowners can deduct interest paid on mortgage balances up to $1 million, including on second homes, as well as on $100,000 worth of home-equity loans.
* Those of us in the Washington area probably tend to benefit from the tax break more than many other Americans due to our region's higher home prices and higher incomes.
* What would be the result of major cuts in the MID?
o After-tax housing costs would jump and demand for housing would decrease.
o Pending home sales would fall through as buyers would consider renting instead of buying.
o Reduced demand would then depress home prices, producing a sizable loss in equity (and resale value) for existing home owners.
o With the housing market still struggling due to the recession, the change in home values could weaken our economic recovery and perhaps push the economy back into a recession.
What can we do about preserving the MID? Contact your representatives and tell them how important the MID is to the regional economy and your clients specifically. You can reach them at http://www.house.gov/representatives/find