Deficit Reduction Commission Releases Report Proposing Changes to the MIDThe bipartisan Deficit Reduction Commission has released its final report, which includes a recommendation to modify the Mortgage Interest Deduction (MID) – a recommendation that could negatively affect millions of American homeowners.
The proposed changes would eliminate an owner’s ability to credit for equity and reduce the mortgage cap by 50% from $1 million to $500,000. Additionally, home owners with a second home or investment property would lose their ability to claim a tax credit for their non-primary residences. The commission is mandated by law to report recommendations to President Obama, and commission members will be asked to review the report and register their vote for or against on Friday. With thousands of prospective buyers and existing property owners in the Charleston area, the reduction or elimination of the MID could have serious effects on the Charleston real estate market.
“Over the last 12 months, the local real estate market has shown consistent signs of improvement and the removal of one of the key benefits to homeownership could devastate this recovering market,” said Jeremy Willits, 2010 President of the Charleston Association of REALTORS®.
The changes would also negatively affect current homeowners, particularly for first-time buyers who purchased in recent years and rely on the MID as a tax deduction. New and recent owners who have higher principal balances on their mortgages will see the most dramatic impact, as they pay greater interest and receive more substantial credits. Those who have owned their property longer or have smaller principal balances will feel a slightly lesser impact as they have had less interest on which to claim the MID.
Federal government incentives for homeownership have existed for more than 150 years, largely due to the positive impact homeownership has shown in fostering communities, creating social stability, building individual wealth over the long term, and contributing significantly to the economy.
While the MID isn’t believed to be a significant factor in a consumer’s decision to purchase a home, it has been proven to make ownership more affordable by reducing the financial burden associated with paying a mortgage. Furthermore, by utilizing the mortgage interest deduction when filing annual tax returns, many owners are able to receive tax refunds or reduce their tax payments, which feeds back into the overall economy through consumer spending.
The Charleston Trident Association of REALTORS® will continue to work with legislative partners and industry leaders on a local, state and national level to ensure a model for responsible, sustainable home ownership.
Newly appointed NAR President Ron Phipps said in a statement, “Recent progress has been made in bringing stability to the housing market and any changes to the MID now or in the future could critically erode home prices and the value of homes by as much as 15 percent, according to our research. This would negatively impact home ownership for millions of Americans, including those who own their homes outright and have no mortgage”.
In addition to its local and state counterparts, The National Association of REALTORS® (NAR) is actively engaged on behalf of the nation’s 75 million home owners and 1.1 million Realtors® to ensure that the current deduction is not repealed or modified.
Reprinted from Charleston Trident Association of REALTORS®
Mortgage Debt Cancellation Act
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