The battle lines have been drawn. The National Association of Realtors (NAR)has taken a hard-line stance against any more changes or reductions to the Mortgage Interest Deduction, stating that doing so would damage one of the strongest incentives for purchasing homes. According to NAR statistics, 68% of all homeowners have mortgages and benefit from this savings. Others at the Urban-Brookings Tax Policy Center state that only about 30% of taxpayers itemize their expenses to take advantage of this savings.
This tax benefit for mortgage interest payers came into existence in 1913 when the federal tax code was created. At that time, all interest was deductible. In the 1986 overhaul of the tax code, the Mortgage Interest Deduction (MID) survived.
Today, the interest on mortgages of up to $1 Million and home equity loans up to $100,000 is deductible. This applies to primary residences as well as additional homes someone may own. It used to be that there was no limit on the loan amounts.
It appears that there is significant momentum in Congress right now to modify the MID as suggested by the Simpson-Bowles report. That bi-partisan panel proposed: reduce the limit on the deduction to $500,000 instead of $1 Million, eliminate the deduction for home equity loans, and prohibit people from deducting interest on homes other than their primary residence.
I believe that messing with the MID right now is a big mistake; housing will pull the economy out of the doldrums if the recovery we are feeling right now is allowed to flourish. Toying with the MID, in addition to the uncertainties about lending availability (due to the Dodd-Frank Bill) and the expiration of the Mortgage Debt Relief Act will bring the housing recovery to a stand-still!
I know there are many differing opinions on this subject. How do you feel about it? Is the MID only a benefit to the “rich?” Will housing prices drop dramatically if the MID is eliminated? Talk to me…