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Is The Mortgage Interest Deduction in Danger? Say it isn't So!

By Claudette Millette

Real Estate Agent with The Buyers' Counsel

November 12, 2010 06:34 AM

There has been more than a little talk lately in Washington over the possibility of taking away one of the most popular tax breaks in history - namely the mortgage interest deduction.

Are our politicians brave or, perhaps, insane enough to actually tread on this sacred cow at such a tenuous time in the housing market?

Just this past week a White House bi-partisan commission has proposed at least scaling back on the deduction by taking it away from loans over $500,000 and also completely away from second home purchases. That may not frighten some people but these types of policy changes can have a trickle down effect.

Since housing prices here in the Greater Boston and MetroWest Massachusetts area are mostly in the higher priced category the possibility of this gives me a definite twinge. And those who sell primarily in vacation or second home markets should also be disturbed.

But more than the direct effect this will have on these specifically targeted areas, it should concern all of us that the government is considering a move like this at a time when we have been facing the worst housing market since the Great Depression. Why now?

The commission claims that the cost to the federal government to keep the deduction in place will add up to more than $570 billion between the years of 2009 and 2013. But what will the cost be to an already dismal housing market to begin to take away valuable incentives for people to purchase?

This issue has come up in the past and was a subject of discussion in 2005 with the then Advisory Panel on Federal Tax Reform. But the plan was shot down when lawmakers successfully made the case that it was too controversial and politically ill-advised to remove a subsidy that is so cherished among many.

Do we need to do some drastic things to jump start the economy? Absolutely. But in this state of an already fragile housing market this may not be the best slope to begin such a slippery slide down.

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Claudette Millette

The Buyers' Counsel - Ashland, MA

Buyer, Broker - Metrowest Mass

Michelle:

Exactly. The issue of ending some of the tax benefits of home ownership has come up before. But, why on Earth would they do it now? It seems to be extremely poor timing.

Nov 12, 2010 07:14 AM

Richard Weisser

Richard Weisser Realty - Newnan, GA

Richard Weisser Retired Real Estate Professional

Claudette...

Because this would be such a terrible thing to happen, I fear that it will probably become law.

Featured in the Group "Whacked!!!"

Nov 12, 2010 07:15 AM

Claudette Millette

The Buyers' Counsel - Ashland, MA

Buyer, Broker - Metrowest Mass

Richard:

Do you really? I am hoping they will come to their senses and put this one back on the shelf (in the far corner) until better times.

Nov 12, 2010 07:19 AM

Jane Peters

Home Jane Realty - Los Angeles, CA

Los Angeles real estate concierge services

Can you believe that this is even being discussed a depressed housing market like today! They go after all the sacred cows like Social Security, Medicare. The could cut even more from the wasteful defense budget to make up that $570 billion. Jeez...

Nov 12, 2010 07:55 AM

Claudette Millette

The Buyers' Counsel - Ashland, MA

Buyer, Broker - Metrowest Mass

Jane:

What we could save in billions of dollars and thousands of lives to not be involved in wars that cannot be won. Now, that is radical thinking.

Nov 12, 2010 08:55 AM

Steve Loynd

Alpine Lakes Real Estate Inc., - Lincoln, NH

800-926-5653, White Mountains NH

Claudette, As a Vacation home Realtor I'm very concerned about the value of properties (in my area) if the interest deductions are no longer allowed as a way to defray income taxes.

Nov 12, 2010 08:55 AM

Claudette Millette

The Buyers' Counsel - Ashland, MA

Buyer, Broker - Metrowest Mass

Steve:

That would certainly hurt. Second home sales are an important part of the housing market and should be treated as such. We need these home sales to be pumping through the economy - all of them!

Nov 12, 2010 09:45 AM

Steve Loynd

Alpine Lakes Real Estate Inc., - Lincoln, NH

800-926-5653, White Mountains NH

Claudette, I added a link to this post on my blog about the same subject...with a bit of a slant, what can we live with- if there was a limit to the level of interest deductions?

Nov 12, 2010 11:19 AM

Chris Ann Cleland

Long and Foster Real Estate - Gainesville, VA

Associate Broker, Bristow, VA

Welll, this certainly is a good topic for one of your first blogs back. I sincerely doubt this would ever have enough support to go through.

Nov 12, 2010 12:58 PM

Nick T Pappas

Assoc. Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, Broker/Providence Property Mgmnt, LLC Huntsville AL - Huntsville, AL

Madison & Huntsville Alabama Real Estate Resource

Claudette, I know this has been talked about for a long time. Not sure why they would do it at all. If our government would learn to live within it's means it wouldn't be necessary, but (I've said this before)...we are just so many pockets to be picked...sooner or later it will come to pass.

Nov 12, 2010 01:19 PM

Dan and Amy Schuman

Howard Hanna Real Estate Services - Solon, OH

Luxury Home Specialists

They have been talking about eliminating the deduction for a long time and I simply don't see it happening, at least without a huge fight. I understand they are looking to cut costs on Capitol Hill, but the timing doesn't seem right to warrant this move.

Nov 12, 2010 01:21 PM

Claudette Millette

The Buyers' Counsel - Ashland, MA

Buyer, Broker - Metrowest Mass

Steve:

Thank you for that exposure. I also found your idea on loan limits to be interesting with the maximum mortgage interest deductions being at the conventional loan limits. You may want to send this into your congressman as an alternative to the madness they have on the table.

Chris Ann:

So far there has been too much pressure on politicians to leave the mortgage interest deduction alone. I tend to agree with you that it is too much of a hot potato for them to change it right now.

Nick:

They are living within their means - they just need a little more of our money to allow them to continue to do so.

There are many pockets to pick but this one does not seem to make sense when the housing market is already suffering. It is really not a good time to discourage people from buying homes. (Of course, I think it never is.)

Dan & Amy:

I am in complete agreement with that. It should be a huge battle to pass this type of reform right now. But, stranger things have happened.

Nov 12, 2010 02:25 PM

Mel Ahrens, MBA, Kelly Right Real Estate

Kelly Right Real Estate - Hood River, OR

Customized Choices for your Real Estate Needs

The Deficit Cutting Commission, co-chaired by a Republican and a Democrat, was charged with identifying ways to reduce spending from 8% of Gross Domestic Product (GDP) to 3% in 2015. They went further and have proposed ways to get it down to 2.2% of GDP. By doing so, they have shown it is possible to do so and have provided options, some popular as well as unpopular.

Obviously, the mortgage deduction would fit into the unpopular category in this forum. By providing more savings than targeted, the commission has provided a way for the unpopular proposals to go away.

They have also put all of the proposals in the open - the ability for politicians to hide and not state where they stand is diminished by the commission doing so. There is something to dislike across all political spectrums. That means it actually has a better chance of succeeding in a perverse sort of way - hopefully there will be a collaborative effort to hit the targets rather than a right/left schism.

Focusing only on one of the proposals ignores the bigger effort needed to succeed. Healthcare, defense, social security - all have been targeted. Business taxes are receiving treatment similar to personal taxes - a reduction in the tax rate for ending current deductions and tax credits.

IF, again IF, the mortgage interest deduction was eliminated, it would most likely (have to) have a very long adoption period before actually taking effect. Some sort of transition would be necessary. The trade-off for a lower and simpler tax does have merit. The devil will be in the details of making the transition. Frankly, I do not see it occurring because the political will/backbone to do so is lacking. It is going to take a much more collaborative and cohesive national legislature to make it happen - just don't see it occurring unless there is a unifying national event which brings the country together.

The work of the commission is a good thing - focus on the entire proposal rather than a small part of the overall. Understand the whole proposal, be informed, not reactionary. That does NOT mean I am in favor of eliminating the mortgage deduction. Rather, I am willing to see what is proposed and what the true impact will be before making a decision.

Mel

Nov 12, 2010 02:44 PM

Claudette Millette

The Buyers' Counsel - Ashland, MA

Buyer, Broker - Metrowest Mass

Mel:

Clearly there are reasons why this is even being proposed and that is to reduce government spending. With our huge deficit we need look no further for reasons why some cuts need to be made. I am, however, glad that the mortgage interest deduction being eliminated (or even reduced) is still in the unpopular category. They may make this change at some point - I just do not think that now is the right time.

Nov 13, 2010 04:20 AM

Candice A. Donofrio

Next Wave RE Investments LLC Bullhead City AZ Commercial RE Broker - Fort Mohave, AZ

928-201-4BHC (4242) call/text

Don't even get me started . . . :)

Let's leave it at . . .

FEATURED IN

~I ROCK, THEREFORE I AM~

Nov 14, 2010 10:54 AM

Claudette Millette

The Buyers' Counsel - Ashland, MA

Buyer, Broker - Metrowest Mass

Candice:

Thanks for the feature.

Nov 14, 2010 12:47 PM

Tni LeBlanc, Realtor®, J.D.

Mint Properties, Lic. #01871795 - Santa Maria, CA

Tenacious Tni (805) 878-9879

This is a hot topic here on Active Rain. But is this a real topic? I just can;t see this happening. But I suppose we should be prepared for anything as out industry is under attack.

Nov 16, 2010 04:43 PM

Claudette Millette

The Buyers' Counsel - Ashland, MA

Buyer, Broker - Metrowest Mass

Tni:

It is, indeed, a topic and is being seriously discussed in Congress. Will they do it? That's another question but it is certainly on the table.

Nov 17, 2010 01:29 AM

Karen Crowson

Coldwell Banker Residential Brokerage - Rancho Bernardo, CA

Your Agent for Change

Claudette, we just heard a lot about this at two meetings this week. All the more reason to support the Realtor Action Fund, so our representatives will have a strong voice when these types of initiatives hit the streets.

Nov 19, 2010 11:28 AM

Karen Anne Stone

New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX

Fort Worth Real Estate

Claudette: I would think that ANY Senator or Congressperson who would vote for doing away with the mortgage interest deduction... would also be doing away with their job. I would be incredibly surprised if it ever happened.

Dec 28, 2010 01:12 AM