Mortgage Interest Deduction to End?

In the midst of one of the worst financial restructuring to occur in the US. Our politicians think the time is ripe to end the Mortgage Interest Deduction. Potentially crushing the housing market even more. Its not just first time buyers who are helping buy the excess inventory, but well capitalized investors, move-up buyers, and empty nesters. The usual suspects.

One thing to consider is our tax system has set up an incentive to fuel housing in the form of a Mortgage Interest Deduction. Effectively providing additional incentives to purchase a home, through a reduction in your overall income, thus reducing taxes owed.

How can we pump so many different incentives into the housing market for the last few years (home buyer tax credits, 1st time buyer tax credits, and new home tax credits), and then consider taking away one of the MAIN factors in the consideration of purchasing a home?

According to CNBC, that is exactly what may be happening in Washington right now.

Read the full article here!

Home buyer tax credits and mortgage bailouts included, the mortgage-interest deduction is the biggest ongoing boon to the housing market and one of the costliest deductions in the U.S. tax code. It will slice an estimated $131 billion out of tax revenue in 2012.The Wall Street Journal calls it the “sacred cow of the tax code,” while the New York Times deems it “politically sacrosanct.” That’s because it’s one of very few tax breaks upon which the middle-income earner can depend. While a cut in the tax break might have been slightly palatable during good times and a housing boom, it seems like a nail in the coffin to the housing market today.

I agree with the Mortgage Bankers Association that “limiting its use will have negative repercussions for consumers and home values up and down the housing chain,” but does that mean it should forever exist? Does it necessarily mean it shouldn’t be scaled back?

This is the constant conundrum. Housing subsidies do nothing but push borrowers to take on more debt. They inflate home prices artificially by giving buyers more spending power. Perhaps if subsidies were gone, home prices would settle to levels of actual affordability.

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