Mortgage Interest Deduction Teetering on the Edge of the Fiscal Cliff

Real Estate Agent with RE/MAX Exclusive Collection

One of the many compromises being levied in the discussions on the Fiscal Cliff is whether or not the mortgage interest deduction on income tax should be allowed to continue in its current form.

Currently, the mortgage interest deduction allows homeowners to reduce their income tax by the interest paid on mortgage balances up to $1 million as well as on home-equity loans equaling $100,000.

Proponents for seeing the mortgage interest deduction removed state that it really only benefits wealthy homeowners, or those who need it the least. However, the National Association of Realtors (NAR) believe that the repercussions of removing the deduction would hurt homeowners across the boards.

In 2010, a study was conducted by the Tax Policy Center of the Brookings Institution and the Urban Institute to showcase the effects of President Obama’s tax reform proposals for fiscal 2011. These proposals included a limit on mortgage interest and property tax deductions. It was found that taxpayers in the 33 percent bracket, who had their mortgage interest deductions limited to 28 percent, had their home values drop by 6.9 to 15 percent.

NAR Chief Economist Dr. Lawrence Yun has stated that removing the mortgage interest deduction could be a very costly decision that “could greatly destabilize the economy.” Ben Stein, on CBS Sunday morning, also argued against removing the deduction, as “we are just barely limping off the bottom of a residential housing catastrophe, and home buying and building are finally, after a genuine nightmare, reviving.”

Ultimately, it’s up to homeowners to raise the call and fight against removing the deduction, and NAR is helping to lead the charge. They have set up a Call to Action form on their site that allows users to easily send a message to their Senators and Representatives stating their opposal to the removal. While set up for Realtors®, it can easily be adapted for any person wishing to participate. We strongly encourage for you to make your voice heard if you want to see the mortgage interest deduction continue.

Comments (32)

Les & Sarah Oswald
Realty One Group - Eastvale, CA
Broker, Realtor and Investor

Michael - if the mortgage interest deduction is removed it would most definitely stall the growth of the economy. What I don't seem to comprehend is how and why they are relating the mortgage deduction to rich homeowners.  Most rich investors don't really need the deduction, they have business write offs.  It is the little, everyday homeowners who will suffer the most from the mortgage interest deduction. They count on the tax write off every year.


Dec 13, 2012 03:26 AM
Rebecca Lee McAnallen
RGS Title, LLC - Culpeper, VA
Big city experience, small town service

Michael, in some ways, there has already been a reduction to this credit as interest rates have been historically low for quite some time. While reading several different articles regarding the mortgage interest deduction, that point hasn't been completely explored. Many homeowners that formerly had higher interest rates have modified to a lower one, whether it was a standard refinance, or a HARP one.

Consider the reduced home sale values and combine that with the 4% and lower interest rates we've seen the last few years the result is a lower tax reduction across the board. People borrowing less, and paying less interest = less deduction on their Schedule A. Removing the credit option completely could be disastrous! That takes such a huge incentive for purchasing away for John Q. Public.

As a few call to attention in the above posts, our government representatives are often too far removed from what half the US faces (dare I say the 47%!) that the true value of certain "small changes" to those who count on the deduction most just cannot be measured. Forces further belt tightening on already financially strapped families!

Dec 13, 2012 03:41 AM
Michael Kara
RE/MAX Exclusive Collection - Orlando, FL
Central Florida Short Sale Expert

@Patrick Thanks for the kind words.

@Karen I agree completely. The housing market is just recovering and needs to remain enticing.

@Paddy It certainly seems that way. The deduction should stay where it is.

@Tim Couldn't have said it better myself. The market's in recovery, why change things now?

@Steve Agreed. The deduction helps entice buyers, removing it will only drive them away.

@Stephanie It's great to see others take action. Good luck!

@Sarah & Les You hit it on the head. This is something that everyone, not just the weatlhy, take advantage of.

@Rebecca Those are some great points you bring up. The deductions have been subtly decreasing for everyone over the last few years. Why remove it entirely?

Dec 13, 2012 03:53 AM
Olga Simoncelli
Veritas Prime, LLC dba Veritas Prime Real Estate - New Fairfield, CT
CONSULTANT, Real Estate Services & Risk Management

The mortgage tax deduction is one of the few that the majority of the middle class can still take advantage of. We need it to stay.

Dec 13, 2012 04:00 AM
Lloyd Binen
Certified Realty Services - Saratoga, CA
Silicon Valley Realtor since 1976; 408-373-4411

Michael, when every self-interested group opposes changing the benefits it derives from the current system, nothing changes.  Status Quo.  Every group has valid reasons for opposing limits on the current benefits it receives. But the tsunami of debt we face will cause greater destruction to the real estate market and the entire economy than limiting mortgage interest deduction.  Incidentally, I'm in a high cost market--Silicon Valley--that would be affected by limiting MID, but we all must sacrifice to prevent greater and complete devastation.  NAR needs to suggest solutions to the debt and deficit malignancy, and not simply oppose proposals.

Dec 13, 2012 05:24 AM
Paul McFadden
Responsive Pest Control - Seattle, WA
Pest Control, Seattle, WA.

Michael: I don't think this will go bye-bye. Thanks for the post!

Dec 13, 2012 07:49 AM
Raymond Kennedy
Keller Williams Preferred Realty - Orland Park, IL

Just another example of why we elected the wrong person, oops, did I just say that. Really, this is not going to be good along with all the other tax hikes we will see come 2013. 

Dec 13, 2012 11:42 AM
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

I think everyone may have to tighten their belts a bit.  I don't think the deduction will go away all together, but there may be some sort of a cap.  Time will tell.

Dec 13, 2012 12:27 PM
Terry McCarley
Coastal Real Estate - Cape Coral FL - Cape Coral, FL

We can only hope and pray this deduction doesn't go away.  It is critical to the housing recovery!

Dec 13, 2012 11:02 PM
Thomas McCombs
Century 21 HomeStar - Akron, OH

I think Lloyd in #17 above has a valid point.

The problem with trying to reduce spending or increase revenue is that each such program has its own vocal constituency.

With the interest rates at their all time lows, the MID does not really have much impact on middle class homeowners. I would like to see some statistics on the actual tax savings for a married buyer who has a $150,000, 3% mortgage, and a taxable  income of 80,000. When compared to the standard deduction, how much difference is there?

It seems to me that unless there are a lot of other deductions such as medical expenses, that the savings might not even amount to enough to pay the tax preparer!

As a Realtor, I do not want to see the MID go away because it provides a strong talking point to help renters decide to become buyers. But I am not sure just how important this should be to them.




Dec 13, 2012 11:34 PM
Lyn Sims
Schaumburg, IL
Schaumburg Real Estate Agent Retired

Even discussion of this seems fiscally stupid because I do believe wholeheartedly that this will just put another nail in the coffin of the housing industry.  All those in charge just can't see the damage or is it they just don't care? 

Dec 13, 2012 11:58 PM
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
Your real estate writer

It appears that everyone in Washington D.C. is far removed from the realities of life and the marketplace. They never step back and think about the unintended consequences of their actions.

And as far as shoring up Federal coffers by removing the deduction - why? They'll just figure out some idiotic way to throw away the money. Remember - a good chunk of the stimulus money went to teach Chinese Prostitutes how to drink responsibly. And even now, when the country is broke, our esteemed leader is sending money to other countries for equally lame purposes.

Dec 14, 2012 02:06 AM
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Pro Lifestyle Solutions

The voters have chosen their leaders in Washington, therefore, speculating about what is good, not good for the economy about any spending or taxing issues are irrelevant. Those who oppose the proposals will simply have to adapt to the new normal and adjust their lifestyle until another change wave occurs. Hopefully, we'll adjust without too much personal sacrifices, however, we have no choice but to survive what ever happens.

Dec 14, 2012 03:41 AM
John Fauth
Coldwell Banker King Thompson - Grove City, OH
Turning your dreams into an address!

Leave it to the government to come up with a way to hurt an industry in recovery.

Dec 14, 2012 06:04 AM
Sharon Parisi
United Real Estate Dallas - Dallas, TX
Dallas Homes

I agree with Dr. Yun and Ben Stein's assessment.  The removal of this deduction has the potential to greatly impact the real estate industry and the economy.

Dec 14, 2012 02:27 PM
Bob Miller
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team

Hi Michael, we hope Washington is smart enough not to mess with the mortgage deduction.  That could be a disaster for real estate.

Dec 15, 2012 12:13 AM
joseph scrocca
Weichert Realtors, Coastal - Wildwood, NJ

We all know that taxation is the penalty for success in this country. The mortgage interest deduction is a small but significant reward for American home owners. Not only does every home owner who has a mortgage deserve the full deduction the $1,000,000.00 cap should be removed.

Some people in this country won't be happy until all Americans are taxed in to poverty. What we need is the Ronald Reagan tax and economic plan to grow the entire economy. Raising taxes by higher tax rates and/or limiting or eliminating deductions does not create more revenue. Lower tax rates produce more tax revenue.

We have to fight for this deduction. If it goes away we will never get it back. That hurts us as real estate agents and property owners.

Dec 15, 2012 02:58 AM
Charles Stallions Real Estate Services
Charles Stallions Real Estate Services Inc - Gulf Breeze, FL
Buyers Agent 800-309-3414 Pace and Gulf Breeze,Fl.

I really wonder if this congress or president listens. They have the American people so divided that they get to run rampart with our money, trample our laws and so callous as to say " you have to pass it before reading it so you will know what is in it" What a crock.

Dec 16, 2012 01:27 PM
Lloyd Binen
Certified Realty Services - Saratoga, CA
Silicon Valley Realtor since 1976; 408-373-4411

Michael, I've expanded on my comment in #17 in my most recent post.  Check it out if you're interested in a contrary point of view.

Dec 16, 2012 02:22 PM
Rob Renk
Center Street Lending - McKinney, TX
AE | Fast Fix/Flip Loans for Residential Investors

This is one deduction that needs to be left alone.  We need to encourage homeownership and this is a good way to get ownership to increase. Washington needs to encourage hoe building not find another way to put up barricades.

Dec 18, 2012 01:30 AM