The mortgage interest tax deduction is one of the most widely used and expensive tax subsidies. More than 35 million Americans claim it, and the federal government estimates it will cost the Treasury $131 billion in forgone revenue in 2012. It’s also a major factor in a buyers decision to buy a home versus renting. To be able to write off mortgage interest is a huge benefit of home ownership. So why is Congress trying to take it away?
The New York Times reports that President Obama’s deficit commission is preparing a proposal that will help streamline the tax code and perhaps eliminate the tax deduction for mortgage interest which would help drastically lower income tax rates. The commission chairman is offering the option of capping the deduction at $500,000 on mortgages, rather than the current limit of $1 million.
“The mortgage interest deduction is one of the pillars of our national housing policy,” said Michael D. Berman, chairman of the Mortgage Bankers Association. “Limiting its use will have negative repercussions for consumers and home values up and down the housing chain.”
New York Times mentions that countries like Canada and Australia don’t have mortgage interest deductions and still seem to have buyers purchasing homes.
The middle-class Americans need the tax deduction; they look forward to it at the end of the year. Without the deduction will we still have Americans buying homes? If Congress takes away the deduction our housing market is likely to take another turn but is it for the worse?