Government Considering Cutting Back The Mortgage Interest Tax Deduction

The National Commission on Fiscal Responsibility and Reform, a bipartisan panel appointed by President Obama is a group that has been charged with developing a strategy to cut the ever growing US deficit and ever increasing U.S. Budget. This past week, the group made an initial proposal for ideas to create additional revenue for the U.S. Government, with a focus on various changes to the how Americans are taxed.

On the mortgage and real estate front, what was significant in this proposal, outside of some small tax code changes, include a proposal to essentially scale back the mortgage interest tax deduction. Currently, homeowners who choose so can itemize their deductions on their taxes and include in that itemization, mortgage interest, so essentially you can deduct mortgage interest at the rate of the tax bracket you are in. So, if you for instance fall into the 28% tax bracket, then you can deduct 28 cents on the dollar for all mortgage interest paid on both primary residences and second home mortgages.

However, under the new proposal the mortgage interest tax deduction would be cut back across the board to a 12% rate for all homeowners, regardless of your tax bracket. In addition, it would allow deductions on primary residences only. This would of course affect homeowners paying more mortgage interest per year and also in higher tax brackets. However, chances are if you are a home owner you are probably at least in a mid range tax bracket to be able to afford to pay for your home, so if this change were to go into effect it would affect and hurt mortgage interest deductions for many homeowners.

That being said, this is only a beginning proposal and already there has been a great opposition to the reduction of mortgage interest deductibility. However, the proposal of such changes shows that the government is looking at mortgage interest deduction cuts as a way to increase revenue. This has been talked about for some time now, but as of today we are still only at a proposal stage with nothing formal moving forward yet, so it remains to be seen if anything will actually change. As always we will provide additional information as it becomes available.

For more information on current programs for existing and potential homeowners, please contact Bill Kamboukos of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com