- Days left

Mortgage Interest Tax Deduction Battle Brews in Washington as 'Fiscal Cliff' Looms

×
Mortgage interest


By Jennifer Liberto

Washington should stay away from touching the mortgage interest tax deduction, warns the U.S. housing industry.

Lately, housing is on the mend and one of the few bright spots in a lumbering economic recovery. Taking away a key tax break could throw a wrench into homebuying plans and hurt a long-sputtering recovery.

Lawmakers in both parties are on the lookout for tax revenue as a way to avert the fiscal cliff.

But the housing industry is preparing to fight against any move to get rid of the mortgage interest tax break.

Powerful housing lobbying groups are taking their fight to the grass roots, armed with granular data on the benefits of the homeowner tax break in every congressional district.

"[Getting rid of it] would throw the housing sector into turmoil... and chill the market just as it is trying to recover," said Jerry Howard, CEO of the National Association of Home Builders.

Related: An End to Bush-Era Tax Cuts Could Push High-End Properties Onto Market

This isn't the first time Washington has taken a critical look at the mortgage interest tax deduction.

It's one of the oldest tax breaks -- designed to encourage homeownership by lowering the tax bill for homeowners.

It tends to benefit upper middle class families the most, according to the nonprofit Tax Policy Center. For those earning more than $250,000 a year, the annual tax savings run about $5,460. For those with annual incomes of less than $40,000 a year, the average savings is just $91, according to the center.

The deduction is the third-largest tax expenditure on the federal budget, according to the Congressional Research Service. The amount of revenue the government would forgo from those claiming mortgage interest deductions is estimated to reach $100 billion by 2014.

Several times, President Obama has proposed cutting the deduction for Americans in the top income bracket -- trimming it to 28 percent of their mortgage interest payments instead of 35 percent.

But his proposals have gotten nowhere, thanks to lobbying from homebuilders, the National Association of Realtors and the Mortgage Bankers Association.

But this time, lobbyists are worried. That's because for the first time in years, House Republicans say they are open to scrubbing any tax breaks from the books as part of shrinking federal deficits.

Housing lobbyists have spent a combined $30 million this year, up from $27 million last year, according to figures from the Center for Responsive Politics.

They're ensuring that leaders don't do anything "penny-wise and pound foolish," said David Stevens, CEO of the Mortgage Bankers Association.

The economy "could actually move backwards" if the deduction is taken away, he warned, because it has a significant impact on middle class Americans' cash flow.

Another powerful group, the National Association of Realtors, has spent a record $25 million on lobbying this year, more than any other year, federal records show. The group declined to share its plans on defending the deduction.

But earlier this month, its president, Gary Thomas, said that the group had "secured 183 bipartisan co-sponsors" this year to support a House resolution that would protect the current tax deduction for mortgage interest.

"We will continue to work with members of Congress on the consumer's behalf on this issue," Thomas said in a statement.

See more on CNNMoney:
Most Affordable Cities for Homebuying
The $640,000 Parking Space
What Are the Taxes of Helping My Kids Build a Home?

More on AOL Real Estate:
Find out how to
calculate mortgage payments.
Find
homes for sale in your area.
Find
foreclosures in your area.
See celebrity real estate.


Tax Moves to Make Now



Follow us on Twitter at @AOLRealEstate or connect with AOL Real Estate on Facebook.

Increase your money and finance knowledge from home

Managing your Portfolio

Keeping your portfolio and financial life fit!

View Course »

How Financial Planners go Grocery Shopping

Learn to shop smart and save.

View Course »

TurboTax Articles

What is Schedule F: Profit or Loss from Farming

If you earn a living as a self-employed farmer, you may need to include a Schedule F attachment with your tax return to report your profit or loss for the year. The Internal Revenue Service defines ?farmer? in a very broad sense?whether you grow crops, raise livestock, breed fish or operate a ranch.

5 Tax Tips for Single Parents

Filing taxes as a single parent requires coordination between you and your ex-spouse or partner. Usually the custodial parent claims the child as a dependent, but there are exceptions. A single parent is allowed to claim applicable deductions and exemptions for each qualifying child. Even though you claim your child as a dependent, she may still have to file her own tax return if she has income, such as from an after-school job.

Add a Comment

*0 / 3000 Character Maximum