One of the ideas Congress is debating to avoid the so-called fiscal cliff is to end the income tax deductibility on interest paid on real estate mortgages. The way it works now is that taxpayers who have mortgages can deduct from their taxable incomes the amount of interest paid each year. That has been the case for many years. Congress mandated that deduction to make housing more affordable for Americans.
At one time, interest on all loans was deductible, but that went away. But the deductibility of home-mortgage interest was considered inviolable.
According to the California Association of Realtors, losing that tax break would amount to an average tax increase of $3,900 on all California homeowners. Of course, that would vary, depending on incomes and the amount of mortgage interest paid.
The idea is terrible. Losing mortgage interest deductibility would seriously hurt the housing market, perhaps sending it into another deep slump like it experienced starting in 2007, and from which it is only now emerging.
Without deductibility, many would-be buyers would either stay as renters or buy lower-end houses.
Not all Americans would be affected by the end of mortgage deductibility. Renters, initially, would not feel it, because they don’t have mortgages and therefore don’t take the deductions. But it might hurt renters in the long run by making it harder for them to afford to enter the housing market as purchasers. Many of us no doubt remember our first house purchases, and how we factored in the mortgage-interest deduction as being one way we could afford our payments.
This would harm those in the middle and lower-middle income brackets whose homes often represent their only accumulation of capital.
Those who file short-form income tax returns wouldn’t feel the loss, either, because they only take standard deductions.
Perhaps this is what the government wants all of us to do.
The Realtors Association suggests that if you don’t like this idea, you should let your member of Congress know. You can do that by calling (202) 224-3121 from 6 a.m. to 3 p.m. our time.
Our members of Congress are Jeff Denham, Tom McClintock and Jim Costa, depending on where you live. Denham and McClintock are Republicans, while Costa is a Democrat.