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Get ready for a fight to preserve the home mortgage interest deduction (MID). The popular tax provision, along with others that support homeownership, is under attack – supposedly to help make the federal tax code simpler and fairer. The National Association of Realtors doesn’t think so.
President Bush’s Advisory Panel on Tax Reform released its report November 1, 2005. One recommendation is to replace the mortgage interest deduction with a tax credit. This would be detrimental to housing markets and impact housing values adversely. It’s that simple. Home prices, especially in high cost areas, could dip 15 percent if the MID is converted to a tax credit. This means the typical homeowner could stand to lose $20,000 to $30,000 in housing equity, and more in high cost areas.
“We’re all surprised that this is a frontal assault on property ownership,” says Steve Hanleigh, chairman of NAR’s Federal Taxation Committee. “What this does is shoot bullets at the American Dream of homeownership.”
The panel’s proposals would:
- Convert the MID into a credit equal to 15 percent of mortgage interest paid
- Reduce the $1 million cap on mortgages eligible for the tax break to the average regional price of
housing, ranging from $227,000 in low-cost markets to $412,000 in pricier ones
- Tie the cap to the FHA loan limit amount, which is generally less than the Fannie Mae and Freddie Mac
conforming limits
- Eliminate deductions for second homes
- Repeal federal deductions for property taxes and other state and local taxes
Recently, Congressman Vito Fossella paid a visit to Staten Island to discuss this issue. During a press conference held at the Staten Island Board of Realtors, he said, “It goes without saying that suddenly pouring cold water on the ability of middle-income families to own a home could have devastating effects on the economy at large. Indeed, the deduction remains the most effective incentive to expand homeownership. We need to look for ways to further enhance the ability of hard-working Americans to achieve the American Dream.”
Sandy Krueger, SIBOR’s CEO said, “The mortgage interest deduction has been a part of U.S. tax policy since the federal tax code was first enacted in 1913. Both low and middle-income people are taking advantage of the mortgage interest deduction. In fact, about 152,000 of the 36 million returns that utilize the deduction show an adjusted gross income of less than $5000. Taking this deduction away would affect those least able to afford it and rob many people of the opportunity to participate in the American Dream of home ownership.”
Why tamper with real estate? Support for homeownership has been a critical part of the Internal Revenue Code since its inception. Over the past five years, housing has led the U.S. economy. Time and time again, the social and economic benefits of homeownership have proven to be good for communities, families, and America.
Sari Kingsley, President of the SIBOR said, “I too support tax simplification but the reverberation that would be created by taking away this incredibly important deduction would be heard throughout the entire community. As a working broker for 25 years I know the incredible benefit of mortgage interest deductibility to first time homeowners.”
The tax panel ignored these benefits. But NAR is aggressively opposing the recommendations, which are being vetted now at the Treasury Department before they’re sent to President Bush. The president could decide by January whether to forward the recommendations to Congress. Should this whole process gain wings and legislation is proposed, NAR will work aggressively to kill the proposals.
Actually, the fight has already begun. NAR has taken steps to communicate a strong opposition to the tax panel’s proposals. These have included:
- Comments to the panel outlining the harm of its recommendations;
- Issuing a press release denouncing changes to the mortgage interest deduction;
- Submitting a letter to Treasury Secretary Snow opposing the mortgage interest deduction changes;
- Encouraging Congress to send letters to President Bush and pass resolutions opposing the proposals.
And, NAR is not stopping there. Newspaper ads have run in the Nation’s Capital. NAR is talking aggressively with Treasury officials and members of Congress to build support for tax reforms that support homeownership. And a huge research proponent is underway to thoroughly examine how the tax proposals will impact residential and commercial real estate values and America’s homeownership rate, now at a historic high of 69 percent. Rewriting the tax code to the detriment of housing is ill-advised and unacceptable. NAR will not stand by and let that happen. The stakes are just too high for REALTORSÒ , property owners, investors and America.
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