In response to recently released recommendations by co-chairs of the Deficit Reduction Commission, Realtors say they strongly oppose any changes that would modify or reduce the mortgage interest deduction. The bipartisan commission created by President Obama proposed cuts and ways to control the nation's $13.7 trillion debt. The mortgage interest deduction (MID), which has provided a benefit to homeowners for more than four decades, was not spared in the final report.
"Few issues are more important to homeownership than the mortgage interest deduction (MID)," said California Association of REALTORS® President Beth L. Peerce. "As the housing market continues to recover from the worst financial crisis in recent history, any change that reduces the ability of the market to heal is misguided and must be rejected," said Peerce.
The 59-page proposal retained the deductions for mortgage interest, but in a truncated form. Current law permits deductions of the interest paid on mortgage debt of up to $1 million on a primary residence and one additional residence. In addition, the interest paid on home equity loans of up to $100,000 may be deducted. The report recommended converting the deduction to a 12 percent non-refundable tax credit available to all taxpayers, capped at $500,000, and limited the mortgage interest deduction to principal residences only (no credit for interest from second residence and equity). The elimination of itemized deductions and the taxation of capital gains as ordinary income were also proposed.
"Any tampering with the mortgage interest deduction in the midst of a floundering economy, a sluggish housing market and high unemployment is way off base. The mortgage interest deduction is an important incentive for home ownership," said Jeff Bell, president of the Silicon Valley Association of REALTORS®.
The deficit commission voted on the plan on Dec. 3, and while it received a majority 11-7 vote, it fell short of the super-majority needed (a vote of at least 14 of its 18 members) to prompt immediate congressional action. Bell said regardless of the vote, individual recommendations like cuts to the MID and other programs impacting home ownership could be included in federal budget legislation in early 2011. Congress would still need to formally propose, debate and pass many of these recommendations before the President could sign any of them into law.
According to a recent survey commissioned by the National Association of REALTORS®, nearly 75 percent of homeowners and more than half of renters surveyed said the MID was "extremely" or "very important" to them. The proposal from the Deficit Reduction Commission will negatively impact the housing market, further erode opportunities for homeownership across the country, and will contribute to further price declines and diminished equity for homeowners by as much as 15 percent, according to the national REALTOR® group.
"Realtors will continue to oppose any plan that would modify or eliminate the mortgage interest deduction, and make sure that its far-reaching implications are understood," Bell said.
Here are other facts about the mortgage interest deduction:
• The MID has been part of the federal tax code since it was first enacted in 1913.
• People with both low and middle incomes use the MID. According the most recent IRS tax return data available, 63 percent of the families who claim the MID earn between $50,000 and $200,000 per year.
• While in any particular year only about one-third of taxpayers itemize, of the taxpayers who itemize deductions, more than 81 percent take the MID.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
For further information, please email or call the SILVAR office at (408) 200-0100.