"I pay very high taxes and I have no deductions," said White, who owns an apartment rental business with his two brothers. Now, after purchasing the $500,000 home in November, he’s looking forward to writing off the interest on his 30-year mortgage.
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 "fiscal cliff." And that’s sending shivers through homebuyers such as White and much of the housing industry.
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.
For that reason, the deduction taken on income tax returns is expected to be on the table in Washington’s search for more money to reduce the budget deficit and resolve the fiscal cliff — spending cuts and taxes increases that will kick in unless the impasse is resolved by Jan. 1.
But the specter of scaling back the tax break, particularly with the housing market still trying to recover from the collapse of the subprime mortgage bubble, is raising alarms among homeowners, Realtors and home builders.
The concerns are even greater in high-priced regions where homeowners benefit more from the deduction because their mortgages are larger.
President Barack Obama’s deficit 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 percent of interest paid.
A tax credit would allow homeowners who don’t itemize deductions to subtract the interest from the taxes they owe. But while more taxpayers could take advantage of the benefit, a cap would mean those with large mortgages on expensive homes couldn’t get a credit for all the interest they pay.
Other proposals have called for similar changes. Salt Lake Tribune
