Proposed Cutting Back on Tax Breaks for Home Mortgage Deductions

14 10 2005

The Wall Street Journal reported that President George Bush’s tax commission may recommend cutting back on tax breaks for home mortgages.

The Journal reports that details are still being worked out but deduction limits on home mortgages may be capped to the interest paid up to a $300,000 mortgage amount, more in line with FHA loan limits. Deductions on mortgage interest beyond that amount would be disallowed.

The nine-member panel is expected to report its recommendations on November 1. Limiting home deductions won’t be popular: The Journal notes that home owners consider the deduction as sacrosanct. While the median home price is $220,000 nationwide, mid level homes in many urban areas easily exceed that level and go well above the $300,000 cap.

There are many homeowners today purchase with little to no down payment. Curbing this deduction would have widespread negative effects on many prospective home buyers for whom the deduction makes owning a home affordable.

“It (curbing the deduction) would curb the speculative appreciation that is occurring around the market,” said Bruce Katz, director of the metropolitan policy program for the Brookings Institution.

Perhaps, Katz believes this would cool the housing market. Sales stayed at near record levels in defiance of analysts predictions. Concerns over speculation seem false logic when the housing market is objectively analyzed and speculation appears to have risen only in limited markets.

The panel is concerned, however, about shocking the housing market, a critical component of the economy. The Journal stated that people who have already bought on the premise of receiving the tax deduction could be grand fathered in. Or, the deduction could be phased down over a 10-year period.

Suffice it to say that any restrictions on home mortgage deductions face a tough go in Congress and before the U.S. home owner.


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