We have been here before. The U.S. government is looking to reduce costs, and the mortgage interest deduction is caught in the cross hairs. The popular deduction allows home owners to deduct the amount of interest paid over the year from their year end taxes.
The home mortgage interest deduction is one of the most cherished in the U.S. tax code. It’s also one of the most expensive, estimated to cost the federal government $100 billion this fiscal year.
But the longtime tax break could face major changes as Washington policymakers search for ways to reduce the deficit as part of the debate on the so-called fiscal cliff. And that’s sending shivers through home buyers and much of the housing industry.
Will The Deduction Go Away Completely?
The short answer? No.
While at this point anything is possible, our best reference is the deficit reduction talks of last year. President Obama’s deficit commission did propose changes to the mortgage interest deduction, but they were by no means axing them completely. The commission proposed lowering the limit on mortgage principal eligible for a deduction to $500,000 from the current $1 million, removing any break for interest on a second home and turning the deduction into a tax credit capped at 12% of interest paid.
A tax credit would allow homeowners who don’t itemize deductions to subtract the interest from the taxes they owe. This would actually allow more taxpayers to take advantage of the benefit, however a cap would mean those with large mortgages on expensive homes couldn’t get a credit for all the interest they pay.
The mortgage interest deduction is one of the most popular tax breaks. In a nationwide poll released this week by Quinnipiac University, two-thirds of respondents said they opposed eliminating it.
So are you in favor or the changes proposed by the deficit reduction panel? Or do you want the deduction to remain unchanged? Let us know in the comment section below.