Loss of deduction will be blow to housing
As Congress looks for ways to trim the deficit they are sure to look again at eliminating the Mortgage Interest Deduction (MID). This deduction has been an incentive for homeownership for more than 80 years. Many homebuyers rely on this deduction to make housing affordable.
Imagine a homebuyer looking for an affordable home. Imagine too, that these buyers are in a 25 percent tax bracket. If they buy a modest home for $150,000 at a low, 5 percent interest rate, their payment will be $805. Total interest on that first year will be $7,450. The tax savings in their bracket will then mean almost three months, or one fourth of a year's house payments, can be paid instead of paying that money to the government.
If the house payments are to be paid without the current incentive, it stands to reason then that the buyer will have to seek a lower priced home or relinquish their desire of homeownership altogether. It seems obvious that this will have a negative impact on the already depressed housing market, forcing prices down further.
In its current state, housing appears to be stabilizing in our area, even improving in some others. The loss of the deduction that generations have become accustomed to could be a crippling blow to this struggling market.
In a recent letter to the editor of the Washington Post the National Association of Realtors stated, "the MID actually benefits primarily middle- and lower income families. Sixty five percent of families who claim the MID earn less than $100,000 per year, and 91 percent who claim the benefit earn less than $200,000 per year. As a percentage of income, the biggest MID beneficiaries are younger middle-class families."
"The MID helps many families become homeowners by reducing the carrying costs of owning a home. The ability to deduct the interest paid on a mortgage can mean significant savings at tax time. For example, a family who bought a home last year with a $200,000, 30-year, fixed-rate mortgage, assuming an interest rate of 5 percent, could save nearly $3,500 in federal taxes when they file next year. That's real money they can use to pay down other debts, save for their children's college education, or put away for retirement." said Lawrence Yun, NAR's Chief economist.
He went on to say, "Unlike the very rich, much of whose wealth is tied to the stock market, the wealth of most middle-class American families is connected to their home. Millions of these Americans bought their homes with the understanding that mortgage interest is tax-deductible, and many of them have steadily paid down their mortgages to build equity in their home. Eliminating or reducing the MID would destroy part of this hard-earned equity for all homeowners, independent of their tax filing status."
No one can argue that our nation's deficits must be reduced. We question the wisdom of accomplishing that at the expense of the housing market when it has been that same market that is credited with bringing us out of past recessions.
For a safe trip home, call a Realtor. Call your Realtor or visit www.cdarealtors.com to search properties on the Multiple Listing Service or to find a Realtor member who will represent your best interests.
Kim Cooper is a real estate broker, Realtor and the spokesman for the Coeur d'Alene Association of Realtors. Kim and the association invite your feedback and input for this column. You may contact them by writing to the Coeur d'Alene Association of Realtors, 409 W. Neider, Coeur d'Alene, ID 83815 or by calling (208) 667-0664 with your questions or commentary.