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Health & Fitness

Mortgage Interest Deduction: It Hasn't Disappeared... Yet

Amidst all the strum un drang today about drones, NSA spying, and tax code revamping, not much is being written about the home mortgage interest deduction… and oddly, that’s a good thing for home owners.

As part of its budgets for the past several years, the Obama Administration has proposed reducing the value of all itemized deductions (most egregiously including the home mortgage interest deduction) for mostly upper income but decidedly impacted middle income taxpayers. This would be done by limiting the value of itemized deductions to 28% for taxpayers who are in tax brackets higher than 28%.  

Thus, individuals who are in the 33%, 35%, or the new 39.6% tax brackets would find their itemized deductions worth less under this proposal.  In other words, an individual in the 35% tax bracket currently gets 35 cents of benefit for every dollar of deduction, where under the Obama Administration, the deduction would be worth only 28 cents per dollar.  

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Other groups, including the President's Commission on Fiscal Responsibility and Reform, have also proposed different ways to repeal or curtail the home mortgage interest deduction which has been with us for, oh, 100 YEARS!, including (1) repealing it in favor of lower tax rates, (2) reducing the current cap to $500,000, (3) eliminating the deduction for second homes and (4) converting the deduction to a 12% tax credit.

Most folks, including the real estate industry, have supported and applauded the efforts of the Obama Administration in taking aggressive measures to stabilize both the housing market and the nation’s economy. And to that end, the San Mateo County Association of REALTORS® (SAMCAR) has vigorously expressed its opposition to the Administration’s proposal, as well as to these other proposals to repeal or cut back on the benefits of the home mortgage interest deduction as being counterintuitive to what the President says he wants to  do.

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Fact is, these proposals are ill-timed and ill-advised and each would have an adverse impact on housing values and the pace of economic recovery… especially in San Mateo County.

Most members of Congress (such as Congresswoman Anna Eshoo) have also opposed these myriad budget proposals.  To date, limits on itemized deductions have not been part of the legislative agenda.  In the current deficit environment, many in Congress say that "everything is on the table," but no bipartisan bill has yet been introduced that would eliminate or reduce the home mortgage interest deduction and there is not a high likelihood one will be introduced during this mid-term election period.

Yet there’s no sense in home owners whistling past the proverbial graveyard. Home owners/sellers/buyers can expect the home mortgage interest deduction to be under continuing attack and scrutiny as the nation moves through this difficult fiscal environment. 

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