The mortgage interest deduction always seems to become a hot-button issue around election time. Politicians say it's the perfect program to cut, as it would free up a much-needed $100 billion or so. Homeowners and housing lobbyists – namely the National Association of Realtors – strongly disagree, saying it's a benefit of home ownership that's baked into the decision to buy a home. The mortgage interest deduction is an important piece of the tax code – especially now as we're in a fragile state of recovery both in housing and the overall economy. Why would anyone cut a tax program that benefits mostly middle-class Americans? It would seem like a swift kick while we're already down.
The mortgage interest deduction allows homeowners to reduce their taxable income by the amount of interest they pay on their mortgage. It's a big deal for many homeowners as it's one of the perks of owning a home and helps reduce the cost of ownership.
The latest threat to cut the mortgage interest deduction came out of the Republican convention in Tampa last month. Presidential nominee Mitt Romney and his advisors once again talked about "limiting" the deduction.
NAR president-elect Gary Thomas responded with a very emphatic "don't do it!" The theory is that reducing or eliminating the mortgage interest deduction would lower home values once again, and drive more Americans underwater.
NAR's position has always been strongly in favor of keeping the mortgage interest deduction in place. This time, there is a solid point in the general argument to leave the deduction alone: Take away this benefit to owning and any homeowner who's already underwater is much more likely to walk away.
Who wouldn't walk away at that point? You're underwater on your mortgage and now one of the benefits to owning that's actually lending you a small financial boost is gone or severely cut. In addition, it seems logical to conclude that removing this benefit would also dampen demand from buyers in the market.
I'm sure buyers aren't buying just because they get a tax break over renting. But it is something that's always factored into the financial decision. And it certainly can help with ball-parking the right price range, since it factors heavily into a family's monthly and yearly budget.
So we beg you politicians: Leave the mortgage interest deduction alone!