Could we lose the mortgage interest deduction?
September 3rd, 2009 Categories: Real Estate News, San Diego County Community News, San Diego county Real Estate News
SAN DIEGO- Back in March, I wrote a blog post about a proposed mortgage interest deduction change by the Obama administration. The proposed plan would limit the deductible amount of both mortgage interest and property taxes for those earning more than $250,000 a year. I wrote that in San Diego county the effect of this proposal would not be as damaging to our real estate market as the California Association of REALTORS was portraying. The overwhelming majority of San Diego homeowner’s make less than $250,000 a year.
Now there is a new proposal be presented to help raise much needed government revenue. Under this new proposal the impact would be felt by a much larger percentage of our county’s populous as this new proposal is based on the amount of debt associated with the property. The impact CAR feared with this first proposal would be much more justified with this new one.
Tops on the CBO’s hit list for housing: Slash deductions for homeowner mortgage interest from the present $1.1 million limit to $500,000, phased in with $100,000 annual reductions starting in 2013 and extending to 2019. Under current law, taxpayers can write off mortgage interest on their principal home debt up to $1 million, and on home equity debt up to $100,000.
Under the CBO’s option, that maximum mortgage debt amount would shrink yearly until it hit $500,000. Over a 10-year period, this change alone would boost federal tax collections by an estimated $41 billion.
The CBO offered up a second option if Congress wants to raise a lot more money: Replace the current mortgage interest deduction with a flat 15 percent tax credit for everybody with mortgage amounts below the declining limits in the first option. Rather than taking write-offs that are tied to your personal income tax bracket, every homeowner would get a credit worth 15 percent of mortgage interest paid. – San
Diego Union, 08/30/2009
So in the first proposal, only those with earnings over $250,000 would face reductions in their ability to write off interest. In this latest proposal, which would phase in starting in 2013, the impact would be almost universal as the average San Diego county home would most likely exceed $500,000 by 2019. This is when the full effect of the proposal would be in effect. Remember in November of 2005 the San Diego county median home price peeked at $517,500 according to Dataquick.
This type of change will directly impact home values as potential buyers will not be able to borrow as much knowing their is less of a tax incentive. Additionally, if implemented as written, the timing will most likely coincide with our markets climb out of the lows we are setting now thus prolonging a stagnation in home values many years beyond the predictions.
The good news here, yes there is a silver lining, is that this type of thing has been proposed in many different forms.
According to news reports, including The Los Angeles Times, the panel "tentatively agreed to recommend a substantial reduction in the limit on mortgage interest that homeowners can deduct from their taxes." Californians are concerned because the median home price in the state — where one out of nine Americans live — is already well over a half million dollars. Others are concerned that a cap on mortgage interest rate deduction could lead to an elimination of the benefit for all homeowners. – Blanche Evans,Realty Times, October 15, 2005*
Yes, the above was written about in 2005 after then President Bush formed a panel to "simplify Federal tax laws to reduce the costs and administrative burdens of compliance with such laws, among other purposes including recognizing the importance of homeownership and charity in American society."*
1 Comment »
RSS feed for comments on this post. TrackBack URI
[…] Could we lose the mortgage interest deduction? […]
Pingback by Real Estate Home Mortgage Deduction Soon to Vanish | For Sale By Owner — September 18, 2009 #