Mortgage Tax Deductions Under Fire?

Every April, we’re reminded of another benefit of home ownership: tax deductions for mortgage interest and property taxes. Well, according to the President’s tax advisory panel, those perks could be at risk for reform in efforts to simplify the tax code.

Along with other measures, the panel last Tuesday recommended a significant trimming of the mortgage deduction and the outright elimination of state and local tax deductions. The potential effect: a loss of a nearly $75 billion subsidy for homeowners. The panel’s rationalization is that the real estate deductions aren’t necessarily encouraging home ownership, and that they favor more affluent citizens and pull investment dollars out of other areas of the economy.

Because the loss of tax deductions would affect most monthly budgets and reduce buying power, most observers agree that home prices would likely be pulled down, by up to as much as 20% in some markets and particularly for expensive homes.

The recommendations fly in the face of President Bush’s request to the panel to maintain support for home ownership, and seem unlikely to make it through Congress. And as you would expect, anyone associated with the building or real estate industry is waving big red flags. But many economists validate the long-term impact of the recommendations. It’s an interesting debate and the New York Times has an informative article covering it.

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Add comment November 8th, 2005