Mortgage Tax Deduction no longer sacred as U.S. tightens tax belt

Mortgage Tax Deduction no longer sacred as U.S. tightens tax belt | Cancel My Mortgage Foreclosure

Congress is weighing ending or curtailing the popular tax break. Housing-industry groups strongly oppose any cuts, though only 25% of Americans get any tax benefit.

Even if the deduction survives the fiscal cliff unscathed, it would  likely come under pressure if Congress undertakes an overhaul of the tax code in 2013. This is not a sure bet, but it looks increasingly possible, according to lawmakers.Curtailing the mortgage deduction could dampen demand for housing and depress home values, putting a brake on a housing market recovery that is just gaining steam.
Eliminating or curtailing the deduction is strongly opposed by the housing industry. The chief economist of the National Association of Realtors has said that ending the mortgage tax deduction could lower housing prices by 15%. Other sources, including the Reason Foundation, have said the decline in value would be closer to 3%.

Both the NAR and the builders’ group have  ”calls to action”, urging people to tell their senators and representatives to oppose any repeal of the mortgage interest deduction.
Several forces are driving the momentum to restrict the deduction. Foremost is the $1 trillion deficit, which could be reduced by 10 percent by killing the mortgage tax deduction alone.
Such a dramatic step is unlikely in the near term. Instead, lawmakers are focused on shrinking the deduction, especially where it most benefits the wealthy.
President Barack Obama has proposed capping itemized deductions at 28 percent of adjusted gross income for high-income households. This could force homeowners to choose between claiming a mortgage tax break or some other kind of deduction.
The maximum amount of eligible mortgage debt for the deduction is currently $1 million for either a first or second home and up to $100,000 on home equity loans.
A December 2010 study on fighting the deficit, known as the Simpson-Bowels report, proposed lowering the limit on eligible mortgage debt to $500,000, as well as killing the deduction for home equity loans and second homes. The report was commissioned by Obama, but he largely ignored it.

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