Magazine article American Banker

Tax Deduction for Interest Payments Faces the Knife

Magazine article American Banker

Tax Deduction for Interest Payments Faces the Knife

Article excerpt

Byline: Paul Muolo

The tax deduction for mortgage interest payments, long cherished by consumers and the housing industry alike, is in danger of being trimmed.

In a few weeks the president's bipartisan commission will release its recommendations for solving the nation's staggering debt load. According to the Urban Institute, the mortgage interest deduction costs the Treasury Department $130 billion a year in tax receipts - money that, if collected, would shrink federal deficits by a similar amount.

Industry lobbyists and executives have been hearing increasing talk over the past several weeks that at the very least the commission will recommend trimming the cap on mortgage interest deductions to loan amounts of $750,000 or less. (Interestingly, the $750,000 figure is almost equal to the Fannie Mae and Freddie Mac loan caps.)

Currently the mortgage interest deduction has a ceiling of $1 million of mortgage debt, which means that if housing-related lobbyists persuadethe panel members to stop at $750,000 it won't result in much revenue flowing back into government coffers. And there's a fear that some panel members might try to eliminate the deduction. After all, politically speaking, it is much easier to remove an existing deduction than to raise taxes.

Some in the industry believe $750,000 is something they can live with. But the National Association of Realtors (whose members' business relies on mortgage liquidity) isn't taking any chances.

The trade group is already mobilizing with a national ad campaign with the tag line "Homeownership Matters - to people, to communities, to America. …

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