LEGISLATIVE AFFAIRS: The Time to Fight for the Mortgage Interest Deduction is Now
Philip Weiden | February 2017
Reform of the Tax Code is important, but must not eliminate the tax benefits of homeownership. Since its inception over a century ago, the U.S. income tax system has recognized the positive effects of homeownership for families, communities, and society by granting certain tax benefits to homeowners. The result has been a home-owning society that is, in many respects, the envy of the world.
However a tax reform plan currently being considered in Washington is inadvertently threatening to decimate or even wipe out the tax benefits of owning a home for 95% of American families. Ironically, the proponents of this type of tax reform pledge to protect the Mortgage Interest Deduction (MID) by retaining it as one of just two itemized deductions that would not be repealed.
The down side of tax simplification is that it would eliminate the deduction for state and local taxes paid including property taxes. Under the plan the standard deduction would be doubled or tripled, greatly diminishing the number of taxpayers claiming deductions for MID. These two changes would largely erase the tax benefits of owning a home. For the great majority, buying would offer little or no more tax benefit then renting.
Large increases to the standard deduction reduce the relevance of the itemized deduction. Taxpayers claim the higher of the actual itemized deductions or the standard deduction. Elimination of most other itemized deductions, such as those for state and local taxes, would greatly magnify the effect of a higher standard deduction.
A small increase in the standard deduction might be justified and even a good idea, however doubling or tripling the amount, while at the same time eliminating most itemized deductions, would hollow out the incentive effect of the MID.
The tax incentive to buy a home has its first and largest impact on the first-time homebuyer. Having a strong and appropriate tax incentive to assist first time buyers has been instrumental in getting millions of homeowners into their first home. Most homeowners could lose equity and thus family savings as the value of houses would go down should the Mortgage Interest Deduction be eliminated,
Millions of homeowners could go underwater, meaning the home is no longer worth as much as is owed on its mortgage. Make your voice heard and fight this proposal.
Editor’s Note: Click here for some interesting information from the National Association of Realtors on the issue.