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Wilderness Realty, Inc.

Maine Land Sales Specialists

Mortgage Tax Deduction Changes Effect Many

July 10, 2013 by  
Filed under Land Economics, Real Estate Blog, Recreation Land

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A major change to the U.S. tax code about the mortgage interest deduction may happen in 2013. A Republican congressman named Dave Camp from Michigan, held hearings in April about reforming the tax code to eliminate loopholes. Camp eluded to the fact that he would like to see a package of total tax reform by the end of the year.

It is figured that this reform measure will only benefit the upper income households. Will Fischer, author of a study calling for changes to the mortgage interest deduction and also an analyst at the Center on Budget and Policy Priorities, said that at least 77% of the mortgage interest deduction benefits went to homeowners making $100,000 of income or more. People who were middle and lower income earners did not get any benefits. This was about half of the people who had mortgages. It is estimated that only 30 percent of homeowners are taking advantage of the mortgage interest deduction on their taxes.

The tax deduction was first enacted in 1913. Some believe that the deduction is not bringing in 70 billion dollars in revenue to the government. They also believe that the tax deduction does nothing for assisting with the ownership of homes across the country, benefiting half of homeowners that are paying mortgage interest. The thinking now is to reform the tax deduction in order to bring the government more revenue while helping more people at the same time. The tax deduction may be converted into a tax credit instead.

Major proposals for reform promote a tax credit of 12 to 15%. The mortgage interest would most likely be limited at no more than $500,000 instead of the current amount of $1 million without tax credit for a second home. The National Association of Realtors say that converting the deduction into a tax credit will cause home prices to decline by 15%. They also stress that the deduction means a lot to homeowners, especially first time homeowners and those who have recently refinanced since they are paying more in interest than principle.

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