One of the most popular U.S tax deductions and a very large home buying incentive is on the verge of some drastic changes. The Mortgage Interest Deduction is being affected by current budget negotiations to avoid the fiscal cliff. This deduction allows homeowners to reduce their taxable income by the amount of interest paid on their Tampa Bay mortgage(s).
The current deduction situation allows Tampa home owners to save a significant amount of money. Here are the current savings of the “MID”:
• Up to $1 million of mortgage
• Homeowners with income less than $40,000 save around $100 a year
• Homeowners with income up to $250,000 save around $1,500 a year
• Homeowners with income more than $250,000 save around $5,400 a year
The proposed changes affect Realtors, homebuilders, and anyone making money off of housing. Here are the proposed changes:
• Cap at $500,000 home value only for primary residents (down from 1 million)
• Limit to $25,000 worth of mortgage interest
• Eliminate savings for only people in the $250,000 or more income bracket
• Limit total deduction to $25,000
• End deduction on second homes and vacation properties
If the proposed changes are approved it will affect those the most who are in the beginning of a big mortgage and therefore are paying the most in interest. This also will affect all home owners who refinanced because it places them back in the beginning of their mortgage. Mortgages amortize with the largest portion of the payments being applied to interest during the beginning of the mortgage repayment terms.
These changes have leaders in the industry very worried. Jerry Howard CEO of the National Association of Homebuilders says, “Even the debate is chilling the market.” And Gary Thomas President of the National Association of Realtor says, “The Mortgage Interest Deduction is vital to the stability of the American housing market and economy.”
Although going over the fiscal cliff would kill the housing market recovery, changing the Mortgage Interest Deduction could hurt the market just as bad.
What do you think? How will this affect you and your tax filings?
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