DENVER (CBS4) – Congress is considering eliminating one of the nation’s most popular tax breaks.
Homeowners in America can currently use their mortgage interest to cut their taxable income, which means a smaller tax bill. About 40 million homeowners take advantage of this tax break every year. The average write-off is about $2,200.
Lawmakers have floated several possible changes, including:
– Limiting the deduction to $25000 of your mortgage interest
– Eliminating it altogether for second homes and for families making over $250,000 annually
– Capping it at $500,000 of the home’s value
There’s even talk of doing away with it altogether.
When Ginger Wolf and Brandon Barrett decided to buy their first home, the ability to deduct the interest on their mortgage was a huge incentive.
“Over the life of this mortgage it’s a lot interest that we’re going to be paying and the ability to deduct that makes a big difference on what our real monthly take-home is,” Wolf said.
The popular tax deduction has long been a sacred cow in Washington. But as Congress struggles to come up with a budget deal, both sides are proposing changes.
“It would impact anybody who itemizes on taxes and counts on that as a deduction,” said Michelle Ackerman with Redfin Real Estate in Denver.
Ackerman says the housing market is just starting to recover, and toying with the mortgage interest deduction could have a chilling impact on demand.
“I think the uncertainty alone is creating a situation for people where they aren’t sure what to do,” she said.
Ackerman said elminating the deduction on a second home would especially hurt Colorado’s mountain towns.
“Whereas the central Denver corridor is in a recovery mode, the mountains have not quite seen that there yet, so that would greatly impact them in the mountain towns,” she said.
While some economists argue the deduction only encourages upper income homeowners to take out bigger mortgages on larger homes, Wolf said she feels that it incentivizes middle income Americans to buy instead of rent.
“It very well could have impacted our decision I would say,” Wolf said.
The mortgage interest deduction is a revenue drain of about 100-billion dollars for the treasury, but scaling it down won’t come without a bruising battle.
The realtors and home builders are powerful lobbying bodies, and chances are if congress does change the write offs, those reforms will be phased in over years.
That’s because housing plays a key role in the economy.