As Washington engages in a standoff over budgetary proposals to avert the fiscal cliff, several industry professionals and associations are calling upon lawmakers to avoid slaughtering what was once thought to be a sacred cow: the mortgage interest tax deduction (MID).[IMAGE]
Introduced in 1913, the MID allows homeowners to deduct mortgage interest attributable to primary residence and second-home debt totaling $1 million and interest paid on home equity debt up to $100,000. While many housing professionals view the deduction as a break for homeowners and an incentive for others to purchase their own homes, critics call the MID a ""subsidization of the real estate industry.""
Now that the MID is on the bargaining table, a number of people are speaking up in defense of it.
In an open letter issued to media outlets around the state, ""California Association of Realtors"":http://www.car.org/ (C.A.R.) president Don Faught argues the deduction ""makes a substantial difference for lower- and middle-income families"" and estimates removing the deduction would cost the average California taxpayer $3,940 annually. In addition, Faught says nearly 700,000 households in the state would no longer be able to afford to buy a median-priced home.
The association also argues against reducing the limit to $500,000 for a primary residence and eliminating it entirely for second homes, saying ""any attempts to reduce the mortgage interest deduction would not only have deleterious effects on homeownership, but also be tantamount to taking the first step toward wholesale elimination of this long-standing deduction.""[COLUMN_BREAK]
In its argument, C.A.R. cites a recent survey finding that mortgage interest and property tax deductions are ""extremely important"" factors for 79 percent of homebuyers when they're making their decision to purchase a home.
""The mortgage interest deduction plays an important role in buyers' monthly budgeting. Without this tax advantage, housing affordability would be negatively impacted and potentially price out many would-be buyers,"" Faught said.
Rick Sharga, EVP of ""Carrington Mortgage Holdings, LLC"":http://www.carringtonhc.com/default.aspx, echoed that sentiment in a statement released by the company.
From my perspective, eliminating or dramatically reducing the mortgage interest tax deduction is the exact opposite of what would be best for the economy right now,"" Sharga said. ""Though some view this tax credit solely as a benefit for so-called wealthy homeowners, it has become a fundamental economic benefit to home ownership for tens of millions of Americans, and is a crucial component to maintaining stability within the housing market.""
While a complete elimination of the MID (a scenario Sharga views as unlikely) ""could be devastating"" to the real estate market, any kind of change to the tax credit could wreak havoc on housing--and on the larger economy in turn, he says.
""If these changes are significant, I suspect we'll experience some softening in the market as well as the economy as a whole,"" he said. ""After all, a weakened housing market will contribute to adverse conditions in related markets such as construction, building materials, home appliances and the like.
""So even if we don't go over the fiscal cliff, burdening the upper middle class and high income households in this way can only hurt the real estate market. Considering that it's been the housing market that's pulled the U.S. out of virtually every recession since World War II, it seems like we should be shifting our focus to stimulating it in any way we can rather than doing anything that might knock it down,"" Sharga concludes.