The Basic Facts About The Mortgage Interest Tax Deduction
Currently, the interest paid on home mortgages is tax deductible. Anyone who owns their home can tell you that this deduction can be fairly large, creating a significant impact on tax payments. To qualify, the tax payer must be making payments on a qualified purchase as defined by the IRS. There are limitations to the policy, but for the most part the majority of homeowners are given the ability to deduct the interest they pay on their home. You can even deduct the interest from a second home (but not a third, fourth, etc). Still others take advantage of this tax clause to deduct the interest they are paying on a home equity loan. It is worth noting that the mortgage interest tax deduction has been in place for as long as Income Taxes have been around in this country…since 1913.
Potential Changes In The Wind
Now comes news that the mortgage interest tax break is being considered for changes in the report by the National Committee of Fiscal Responsibility and Reform. The proposals put forth in the recent report do not seek to eliminate all tax deductions, but it does look at adding new limits to the policy. Understanding that the report is merely that, a report, it is still important to know what changes are proposed and their potential impact.
The proposal suggests to:
1. Eliminate the tax deduction for interest paid on home equity loans.
2. Eliminate the tax deduction for interest paid on mortgage loans for second homes.
3. Limit the tax deduction for interest paid on mortgages exceeding $500,000.
Mortgage Bankers Association Against The Proposal
Michael D. Perman, Chairman of the MBA, issued a statement regarding the proposed changes to the mortgage interest tax deduction. In speaking on behalf of the MBA, Perman states that given the nature of today’s fragile real estate market and the economy overall, this isn’t a good time to remove incentives. His concerns include the potential to further lower the value of homeownership. He goes on to state that, while he understands the importance of correcting the nation’s current economic troubles, decreasing the incentives for homeownership would cause more problems than it would solve.
Of course, nothing is in the books and no changes have been made thus far, so any discussions at this point are merely for the sake of keeping everyone updated on the latest proposals that may impact homeowners. The potential impact of eliminating or limiting the tax deductions on home mortgages is significant and could alter the landscape of housing in this country for years to come. With significant voices already stating opposition to the report, it is unlikely that any changes will occur without broad debate in our political chambers. We will keep you posted on any new developments as they occur.