Debt Ceiling And The Mortgage Interest Deduction

UPDATE: [August 2, 2011] While an agreement in Washington DC has been found, no specific details on the Mortgage Interest Deduction were announced.  The debt deal provides timelines for the proposed cuts and the first deadline is November 23, 2011.  At that time, legislators selected for a special committee will outline the cuts to be made as a part of this deal. Most still believe that some adjustments to the Mortgage Interest Deduction will be a part of the package. However, no changes will go into effect until 2012, so the deduction is safe for this calendar year.

Our original post from July 26, 2011 about the Debt Ceiling issue is below:

As Washington D.C. continues to struggle to find a solution to the debt ceiling impasse, the Mortgage Interest tax deduction is firmly on the negotiating table. Differing opinions on how best to adjust the deduction, long believed to be an important advantage to home ownership, have emerged, according to an online article at

Currently, borrowers can deduct the amount of interest they pay on their mortgages from their principal residences and second homes. The interest deduction is limited to the first million dollars of debt on the home. Interest from home equity loans are also included, but they are limited to $100,000 in debt. As a result, it is estimated that the deductions cost the U.S. Treasury Department nearly $100 billion per year.

On one side of the equation are those who want to alter the deductions so that the Treasury can collect more much needed funds. Proposals include lowering the cap to $500,000 for primary residences and/or eliminating the deduction for second homes.  A more aggressive model, proposed by President Obama’s bipartisan commission, calls for turning the deduction into a 12% credit, but limiting it to the first $500,000 of value for primary residences only.  Projections indicate that this effort would yield $65 billion for the Treasury Department.

On the other side of the coin are those who believe that the credits should favor investors, rather than primary residents, as that would create more financial incentive for real estate investment. Stoking the fires of the housing industry would be a huge plus for the overall economy and would turn the deduction into a business tax credit, of sorts. In other words, allowing deductions only on investment properties would increase the attractiveness of owning real estate as a business.

Late last year, the U.S. Congress passed a tax bill that extended the deductability of mortgage interest through 2011. It is unclear at this time if changes made due to the negotiations for managing the debt ceiling issue would alter the previous bill. Most likely, any changes would begin in 2012, though no dates have been discussed thus far. To read more about last year’s tax bill, please click here.

We have previously explained the various tax advantages to home ownership. Any change to the deductability of mortgage interest would greatly alter the current landscape. To learn more about tax benefits to home ownership, please click here.

To read the full CNBC story, please click here.


About missionmortgage

A full-service professional mortgage banker providing lending in Texas for over 25 years. Our main office is located at 901 S. Mopac Expwy, Barton Oaks V- Suite 120, Austin, TX 78746 with branches in Lakeway, Houston, and Sealy. Mission Mortgage has been ranked as a Top 10 Mortgage Company in Austin for the past 7 years (Austin Business Journal).
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