In the last few elections, the topic of eliminating or at least curtailing the current mortgage interest deduction was put on the table. Up until now, it has been off limits. Could that be coming to an end?
Studies show that this deduction mostly benefits those homeowners in the higher income brackets making in excess of $100,000 annually. Because of their income levels, low to moderate income homeowners usually get no benefits from this deduction.
So, one way for the federal government to increase tax revenues without raising taxes is to eliminate, or at least reduce, this benefit. What effects might such an action have on current homeowners who took this deduction into account when purchasing or refinancing their current home? What could it do to home values if eliminated?
The cost to own would increase for current homeowners presently taking advantage of this deduction while the value of their home, and their equity, declined. Although there is no direct tax increase, there would be a higher tax burden on current homeowners.
On the other hand, declining home values would create more affordable housing for first-time and low to moderate income buyers. This would increase the homeownership rate creating more opportunities for lending, and business for associated industries.
Maybe we can come up with some sort of hybrid plan that would provide some write off of the mortgage interest based on income level, with the deduction capping out at a level somewhat lower than what exists today.
As an alternative, as suggested by some, we might limit the deduction for those who now benefit and provide a one-time initial tax credit to new first time buyers to offset their initial costs to enter the market.
Or, we can leave the home mortgage deduction as is and look for others ways to stimulate the economy to increase jobs and wages so more people can afford to buy and own homes while cutting unnecessary government spending to minimize any need to raise taxes.
What are your thoughts? Do you think it’s a good idea to eliminate the current mortgage interest deduction? What effects might doing so have on current homeowners, future buyers, the housing market, homeownership rates, the lending community and our economy as a whole?
If it was your move, what would you do?