Frederick County Short Sale Blog | Homes for Sale in Frederick Md

The Mortgage Interest Deduction May Be On the Chopping Block

Homeowners' mortgage interest deduction may be at risk, as Congress and the Administration look for ways to deal with the enormous and looming deficit.  The deficit reduction plan presented by the National Commission on Fiscal Responsibility and Reform calls for a change to the present deduction. 

The mortgage interest deduction would be eliminated, and in its place homeonwers would claim a 12% nonrefundable tax credit on a primary residence with a mortgage up to $500,000. The present limit is $1 million in mortgage.  The proposal eliminates any credit for second homes.

The consequences would be devastating to the recovering housing market and the tens of millions of home owners who benefit from the deduction.

 How will this affect the average homeowner?

 According to the NAHB, National Association of Home Builders:

“Suppose a married couple, both of whom work and earn $45,000 for a total household income of $90,000. The family faces a 25% marginal income tax rate. Under present law, a dollar of mortgage interest paid is worth 25 cents of reduced tax liability. Under the commission’s proposal the value would fall more than half to 12 cents. For an average sized home and mortgage for a family with this income, the MID is worth about $3000. Under the tax credit, it would be worth less than $1,500.  That is the equivalent of raising their mortgage payment by $125 per month.”

The deduction helps younger homeowners more than older homeowners; they are paying more in interest during the first half of their 30-year mortgage than the 2nd half.  Usually older homeowners have older mortgages, though not always, and are paying less in interest and more in principle.

What can I do?

Save My Mortgage Interest Deduction.com is a website specifically set up to answer questions and help homeowners take action.  This NAHB sponsored site has all the information. Here are some actions you can take.

And as always, contacting our representatives is something we can all do.  Just in case you don’t have their contact info:

Congressman Bartlett

Senator Mikulski

Senator Cardin

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The Highland Group