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March 4, 2011

National Debt Commission Proposes Ending the Home Mortgage Interest Tax Deduction

Category: Mortgage Interest Tax Deductions – admin – 1:27 am

Real estate agents, lenders and homeowners are starting to get nervous about the Obama administration repealing the many tax benefits for home-ownership, like the home mortgage interest deduction.  Among the tax expenditures the commission specifically targeted was the annual breaks that now flow to homeowners, including tax write-offs for lending costs on purchase-loans, home refinancing and interest deductions on 2nd home loans, home equity and refinance loan transactions.  The commission was also considering property tax write-offs for $250,000 and $500,000 capital gains exclusions for single and married taxpayers, respectively, who sell their houses at a profit.

President Obama commended the broad goals of the commission but only included a minor reduction in mortgage interest deductions, a 28% deduction cap on write-offs by single taxpayers with incomes higher than $200,000 and married taxpayers earning more than $250,000 – in his own budget proposal for the upcoming fiscal year.

How Much More Would You Pay in Federal Taxes If Obama Repeals the Mortgage Deductions?

Obama’s budget proposal only called for ending home loan interest deductions for high-income taxpayers, but many believe it is only a matter of time before the President circles back for a complete overhaul that includes measures to end the tax deductions for homeownership as we know it. It’s no secret that Obama uses the national debt forum to promote the redistribution of wealth.

We anticipate the legislative draft to be circulated to senators in March, already is controversial. For example, Senetor Charles Schumer (D-N.Y.) reportedly is demanding that Social Security changes be exempt from the plan. But members of the drafting group disagree and argue that, to be effective and fair, no major budget-related items no matter how politically sensitive can be omitted.  “Everything has to be on the table,” said Coburn. “There can be no sacred cows and pet priorities.” As to tax code changes, Durbin said that the only way to reduce the deficit is to “ensure that everyone pays their fair share . . . we need to look at the money we forgo every time we hand out a new tax break. These ‘tax expenditures’ cost the Treasury as much as we spend in appropriations each year with much less oversight.”

According to the latest estimates prepared by the congressional Joint Committee on Taxation, the 1st, second mortgage and home equity interest deduction will cost the government $99.8 billion in uncollected taxes this fiscal year and $107.3 billion in fiscal 2012. Homeowner property tax write-offs will cost $26.6 billion in uncollected taxes this year and $31.6 billion in 2012. The $250,000/$500,000 tax-free exclusions on capital gains for home sale profits are projected to cost the Treasury about $19 billion this year and $21 billion next year.  No one anticipates that these benefits could be eliminated or even severely slashed within a couple of years. And while housing trade groups have not yet spoken out about the plan being drafted in the Senate, they privately worry that, because of the sheer size of the national debt, leaders from both parties could conceivably join with the president to structure some form of grand debt reduction compromise that requires all special interests to chip in.  “We definitely take this seriously,” said Rob Dietz, an economist and tax specialist for the National Association of Home Builders. “We are going to have to continue to make the case for housing, and remind [Congress] just how important housing is to the economy.”  Read the original article published by Nationwide Lender calling the talk of ending the Mortgage Interest Tax Deduction as dangerous. (Visit http://www.bdnationwidemortgage.com/blog/index.php/2011/03/eliminating-mortgage-interest-tax-deductions/ )