Posts Tagged ‘mortgage-interest deduction’

Intero Insider: Why the Mortgage Interest Deduction is So Important Right Now

By Gino Blefari | September 19th, 2012 0 Comments

The mortgage interest deduction always seems to become a hot-button issue around election time. Politicians say it’s the perfect program to cut, as it would free up a much-needed $100 billion or so. Homeowners and housing lobbyists – namely the National Association of Realtors – strongly disagree, saying it’s a benefit of home ownership that’s baked into the decision to buy a home.

The mortgage interest deduction is an important piece of the tax code – especially now as we’re in a fragile state of recovery both in housing and the overall economy. Why would anyone cut a tax program that benefits mostly middle-class Americans? It would seem like a swift kick while we’re already down.

The mortgage interest deduction allows homeowners to reduce their taxable income by the amount of interest they pay on their mortgage. It’s a big deal for many homeowners as it’s one of the perks of owning a home and helps reduce the cost of ownership.

The latest threat to cut the mortgage interest deduction came out of the Republican convention in Tampa last month. Presidential nominee Mitt Romney and his advisors once again talked about “limiting” the deduction.

NAR president-elect Gary Thomas responded with a very emphatic “don’t do it!” The theory is that reducing or eliminating the mortgage interest deduction would lower home values once again, and drive more Americans underwater.

NAR’s position has always been strongly in favor of keeping the mortgage interest deduction in place. This time, there is a solid point in the general argument to leave the deduction alone: Take away this benefit to owning and any homeowner who’s already underwater is much more likely to walk away.

Who wouldn’t walk away at that point? You’re underwater on your mortgage and now one of the benefits to owning that’s actually lending you a small financial boost is gone or severely cut.  In addition, it seems logical to conclude that removing this benefit would also dampen demand from buyers in the market.

I’m sure buyers aren’t buying just because they get a tax break over renting. But it is something that’s always factored into the financial decision. And it certainly can help with ball-parking the right price range, since it factors heavily into a family’s monthly and yearly budget.

So we beg you politicians: Leave the mortgage interest deduction alone!

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The Intero Insider: Mitt Romney Eyes Mortgage-Interest Deduction

By Gino Blefari | April 18th, 2012 0 Comments

Throughout the economic downturn and recovery, we’ve seen the topic of the mortgage-interest deduction come up time and again. It’s fitting that Republican presidential candidate Mitt Romney would bring it up this week as millions of Americans are frantically filing income taxes to avoid being late.

In a speech on Sunday, Romney said he’s considering eliminating the mortgage-interest deduction for second homes for high-income individuals. This often comes up with politicians and congressional groups as a viable option for creating more revenue for the federal government.

Let’s first look at the number of homes and owners this might affect. The National Association of Realtors estimates that second homes – including vacation and investment properties – accounted for 38% of home sales in 2011. The group said that about half a million vacation homes and 1.2 million investment properties were sold last year, continuing a trend in which these homes have accounted for the largest chunk of sales since 2005.

Generally speaking, eliminating or making changes to the mortgage-interest deduction is not going to have a great impact on the housing market. While the government may reap some rewards in the form of more cash made via taxation, most homeowners and first-time buyers still see the deduction as an important perk or benefit of owning a home. Messing with this deduction now at a time when the recovery is still quite fragile and slow would be a bad idea.

Eliminating or scaling back the mortgage-interest deduction would hit states in which vacation homes are most popular harder than others. Florida, Maine, Michigan and Colorado could see fewer sales as a result.

Moreover, more buyers have been jumping in the market and buying investment properties in recent years. Sales of investment properties spiked 64% last year. These are properties that otherwise may not have been purchased, which makes a pretty big case for keeping all incentives in place for investors to continue buying, and therefore aiding the housing recovery along.

While some say that the mortgage-interest deduction isn’t as big a deal for second home buyers because of the emotional nature of those purchases, I’m leery of mucking up a homeownership perk that’s long been held as a great benefit to owning a home. If incentives like this are working to keep investors hungry for real estate – and that hunger in turn is helping the market as a whole – then let’s back off and find another way to fix our fiscal mess.

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Intero Insider: Mortgage Interest Deduction Safe – For Now

By Gino Blefari | December 8th, 2010 0 Comments

As you may recall, a Congressional committee tasked with coming up with ways to fix the deficit recently proposed significant cuts to the mortgage-interest deduction in order to free up revenue that could help tamp down the deficit. (See my post on this here.)

The good news is that President Obama’s commission has rejected the proposal. But it’s likely not a dead issue.

Most home buyers and homeowners view the mortgage-interest deduction as a big incentive for owning a home. Each year, homeowners are able to deduct their mortgage interest from their income tax bill. It is the largest single subsidy for housing in the U.S., and is projected to reduce tax revenue by $131 billion in 2012.

Thankfully, the real estate industry took a stand to let the administration know that a move like this could have major consequences on an already sluggish market. Taking away a major incentive like the deduction likely would’ve dragged down demand and we’re still just too fragile for a move like that. The National Association of Realtors said these proposed changes would’ve pushed home prices down another 15 percent.

Some of the members of Congress who voted on the proposal seemed to indicate that further study would be happening so don’t be surprised if this issue comes up again next year. Our nation faces serious fiscal problems and $131 billion in lost tax revenue is a hard fact to ignore.

What can we do about this? As Realtors, we can let our state and national associations know where we stand on the issue. As homeowners, we can write our Congressmen and Congresswomen to let them know where we stand and how a move like this would impact our families’ financial situations. We can let them know about our perception of the deduction as a big incentive for owning versus renting – especially in our high-cost areas of California.

The tax wars have only just begun. The government will be examining ways to help taxpayers – many of whom are jobless or are dealing with decreased earnings – while also trying to fix its own massive budget woes. It’s not an easy situation. But let’s not forget the powerful force that housing is in the overall economic landscape. Let’s be sure to stay on top of this and let our representatives know how changes will impact our own bottom line.

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Intero Insider: Cut the Mortgage-Interest Deduction Now? Say It Isn’t So

By Gino Blefari | November 23rd, 2010 1 Comment

The mortgage-interest deduction is the latest housing policy Congress is targeting for possible cuts that could have a deep effect on the nation’s housing recovery. For California, this feels a lot like a “kick us while we’re down” move by Congress.

Don’t panic yet, though. Talk is cheap and this is an issue that has come up before – each proposal getting nowhere. Let’s look at what’s happening here.

First, what is the mortgage-interest deduction? It’s part of the tax code that enables homeowners to deduct the interest they pay on their mortgage from their income tax bill each year. It provides a nice deduction for those in high-cost areas like California and is a significant incentive for home buyers as they know they can count on this deduction to help reduce their annual tax bill.

Sounds good, right? So why cut it?

The mortgage-interest deduction is the largest single subsidy for housing in the U.S. and is projected to reduce tax revenue by $131 billion in 2012. It’s easy to see why Congress would be interested in gaining back some of the revenue.

The proposal that sparked the whole discussion early in November would reduce the amount of mortgage debt on which a borrower could deduct interest paid from the current limit of $1 million to $500,000. Also, borrowers could no longer deduct interest paid on home-equity loans or on mortgages for vacation homes.

The upside is the immediate pool of revenue this would create for a Congress that’s dealing with major deficits. However, pulling it from the hands of homeowners is a pretty bad move that could seriously derail an already-slow housing recovery.

With more than 11 million U.S. households now holding a mortgage worth more than their home, according to CoreLogic, taking money from homeowners is an obvious bad idea. And even though the proposal is simply to lower the current cap, it’s still a pretty drastic move that would significantly impact different segments of the market.

Proponents of the cut argue that only higher-income homeowners actually benefit from the deduction because those in the middle or lower-end tend not to itemize deductions on their tax bills anyway – opting instead for the standard deduction. They say that high-cost states are the ones that would be most impacted by a move like this.

I say it all depends. Many times moves like this will do more damage by sheer perception than actual numbers. The government takes away one of the largest incentives for buying a home. That’s bound to crush more consumer confidence.

So please, Congress. Think before you act on this. Housing is a work horse in our national economy. Don’t make a hasty move in order to fix another problem.

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