Home prices, particularly in high cost areas, could decline 15 percent if President Bush's tax reform panel'ss expected recommendation to convert the mortgage interest deduction (MID) to a tax credit gets implemented, said Al Mansell, president of the National Association of Realtors®.
Speaking at the opening session of the 2005 REALTORS® Conference & Expo here, Mansell said that if the MID were changed, the typical homeowner could lose $20,000 to $30,000 in housing equity.
Housing is the engine that drives this economy and to even mention reducing the tax benefits of homeownership could endanger property values. The tax deductibility of interest paid on mortgages is both a powerful incentive for homeownership and one of the simplest provisions in the tax code. It should not be targeted for change, Al Mansell said. "NAR will continue to tell Congress that Realtors® strongly oppose any attempts to alter the current tax treatment of mortgage interest."
Eliminating the mortgage interest deduction would hurt middle-income families the most, he said. According to IRS tax return data from 2003, 52 percent of the families who claim the mortgage interest deduction have household incomes between $60,000 and $200,000.
The president's tax reform panel will issue its proposals next week. It is expected to recommend converting the MID from a deduction to a tax credit; reducing the $1 million cap on mortgages to the local FHA loan limit (which can be as little as $170,000 and no more than $312,000 in high cost areas such as Alaska, Hawaii, Guam or the Virgin Islands; the current cap has been in place since 1987); eliminating any deduction or credit for second homes; repealing the deduction for property taxes, as well as other state and local taxes; and raising the amount of gain to be excluded on sale of a principal residence, but reducing the frequency in which the exclusion can be taken.
NAR sounded desperate. Al Mansell, president of the National Association of Realtors®, stated "These proposals are startling. We communicated immediately with the chairs of the Tax Reform Panel and expressed our shock at their proposals."
I totally support "eliminating any deduction or credit for second homes," as well "reducing the $1 million cap on mortgages." Too much federal tax revenue is lost on deductions for second homes and expensive homes.