Christophe Choo YouTube


Search This Blog

Monday, December 10, 2012

Congress Considers Cutting Mortgage Deduction

Congress Considers Cutting Mortgage Deduction

To raise revenue, Lawmakers in Washington are looking to cut the mortgage interest tax deduction. However, experts in the housing industry warn that taking away the critical tax break could throw a monkey wrench in the recovery of the housing market. 

For Jerry Howard, CEO of the National Association of Homebuilders, cutting this tax break could “throw the housing sector into turmoil... and chill the market just as it is trying to recover.” 

With the pace of new home sales and home starts on the rise, all signs point to a housing recovery. However, the housing market is still fragile, experts say, and won’t fully recover until job numbers begin to improve.

Mortgage Deduction and the “Fiscal Cliff”

The mortgage tax deduction is on the budgetary cutting board because a series of automatic spending cuts, called the “fiscal cliff,” are scheduled to take place at the end of the year. One of the spending cuts that affect the housing industry is the Mortgage Cancellation Forgiveness, explains NAHB economist Danielle Hale. “If you sell your home in a short sale, for instance, you are required to report that debt forgiveness as income on your 1040. But with this temporary provision, you don’t have to pay taxes on that particular piece of income…This is something scheduled to expire at the end of the year.”

Lobbyists Up in Arms

Armed with big data, lobbyists are taking the fight to congressional districts. Groups like the National Association for Realtors (NAR) and the Mortgage Bankers Association have enough information to define the benefits of the mortgage tax deduction for each congressional district. Economist Lawrence Yun of NAR says that cutting the mortgage tax break could lower property values 15 percent, affecting more than just the homeowners who benefit from the tax break.

The average homeowner saves $600 annually with the mortgage tax break. Allowing the tax break to expire along with the rest of the Bush era tax cuts could halt the economy, which in recent months has shown signs of stability. 

Hope Exists for the American Dream

The tax break is especially popular in places of high housing costs, like the Bay Area in California, because taxpayers can cut their taxable income by the amount of interest paid on home loans. But the logic follows that people who can afford expensive housing also tend to have high rates of income. Therefore, not all economists are convinced that the tax break is essential to keep the housing recovery moving forward.

For a $600,000 home, the mortgage tax break can translate into $6,000 in savings on income taxes. Economists in Washington now favor a cap on mortgage debt that can be deducted off income taxes. Diane Swonk says, “If you keep the deduction for the bulk of Americans, but just eliminate it for the over-sized homes, you still get the American Dream.”

Congress Considers Cutting Mortgage Deduction

Posted on: Beverly Hills Real Estate-Beverly Hills Homes For Sale

No comments:

Post a Comment