Elimination of the mortgage interest deduction bad news for homeowners Reply

Republicans recently rejected language in their party’s platform committing to the preservation of the mortgage interest deduction (MID).   According to the Wall Street Journal, one of reasons cited by GOP was that it would make tax reform more difficult.

The presumptive Republican Party nominee for the presidency is campaigning on reforming the tax code, which includes the elimination of or limits to MID for high income earners.  At a private fundraiser in Florida, Romney said that he would eliminate MID for second homes.

MID allows homeowners to deduct the interest that they pay on mortgages from their taxable income.  It has been in effect since 1913 and has made home ownership more affordable for millions of Americans.

The Republican Party is not the only one less-than-committed to preserving MID.  President Obama has also indicated that he is open to limiting MID for high income earners.   The president’s proposal calls for limiting all itemized deductions—including MID—at 28% for married couples earning more than $250,000 and single people who earn more than $200,000.

According to an article in the Huffington Post that cites a University of Pennsylvania study, families earning more than $250,000 benefit the most from MID with it resulting in a $5,459 savings on their tax bills.  Average homeowners with incomes between $40,000 and $75,000 only save $523 in taxes with MID.

As would be expected, the National Association of REALTORS® (NAR) and the National Association Home Builders (NAHB) are adamant about protecting MID.

NAR believes that the president’s proposals will have an adverse effect on home values and the pace of the economic recovery.   NAR does not support any changes whatsoever to MID.  The notion that losing MID would have reduce home prices was supported by the senior director at Moody’s Analytics in the Fiscal Times, Celia Chen, who favors eliminating MID.

“There’s going to be a period when lack of the deduction is going to hurt home sales, but in the long run it’s not going to have a big impact on the housing market because prices will adapt downward to reflect that you can’t get the deduction, and that will lead demand to pick up again,” Chen said.

Further, the Chief Director of Research at the Real Estate Center at Texas A&M University, Mark Dotzour, told the Fiscal Times that the motivations for buying a home outweigh the negative effect of MID adjustments.

“People typically buy a home because they started a family, had a baby and need a bigger place; just got a promotion and want a nicer place; or just got a divorce and need a smaller place,” Dotzour said. “All those things that create standard demand for houses year-in and year-out — tax credits don’t have anything to do with them, and people will buy homes whether the credit is there or not.”

The chairman of the NAHB, Barry Rutenburg, said in an April press release regarding President Obama’s proposal:

“With many local housing markets across the nation just now showing signs of a long-awaited spring thaw following the worst downturn in decades, protecting the mortgage interest deduction and promoting tax policies that will keep homeownership affordable is very important to create jobs and keep the economy moving forward.”

NAR actively lobbies against changes to MID and will continue to do.

If you are planning on buying or selling a home in the Pioneer Valley, make your first call to Michael Seward at 413-531-7129.

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