- 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.
homes for sale in your area.
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

Introduction to Retirement Funds

Target date funds help you maintain a long term portfolio.

View Course »

How much house can I afford

Home buying 101, evaluating one of your most important financial decisions.

View Course »

TurboTax Articles

Video: Tax Guidelines About Gifting

Note: Some of the content of this video applies only to taxes prepared prior to 2012. It is included here for reference only. Find out the tax guidelines about gifting with help from TurboTax in this video on tax tips.

Video: What are Income Tax Rates?

Note: The content of this video applies only to taxes prepared for 2010. It is included here for reference only. Income tax rates change depending on both the amount of money you make and how you made it. Find out about income tax rates with help from TurboTax in this video on tax tips.

Video: How To Reduce Errors on Your Tax Return

Did you know that errors on your tax return can affect the amount of your tax bill and the amount of time it takes to get a refund? Fortunately, TurboTax helps you avoid errors AND be sure you're getting all the tax deductions and credits you deserve.

Does Your Company Need to File Form 1095-B?

A company is responsible for filing IRS Form 1095-B only if two conditions apply: It offers health coverage to its employees, and it is "self-insured." This means that the company itself pays its employees' medical bills, rather than an insurance company. A company that doesn't meet both conditions won't have to deal with Form 1095-B. Its employees might still receive a 1095-B, but from their insurer, not the employer.

Video: Who Qualifies for an Affordable Care Act Exemption (Obamacare)?

The Affordable Care Act requires all Americans to have health insurance or pay a tax penalty. But, who qualifies for an Affordable Care Act exemption? Find out more about who qualifies for an exemption from the Affordable Care Act tax penalty, how to claim an exemption on your tax return and how the Affordable Care Act may affect your taxes with this video from TurboTax.

Add a Comment

*0 / 3000 Character Maximum