- 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

Goal Setting

Want to succeed? Then you need goals!

View Course »

Banking Services 101

Understand your bank's services, and how to get the most from them

View Course »

TurboTax Articles

Cities with the Highest Tax Rates

Much ado is made in the press about federal tax brackets, but cities can carry a tax bite of their own. Even if you live in a state that has no income tax, your city may levy a variety of taxes that could eat away the entire benefit of living in an income tax-free state, including property taxes, sales taxes and auto taxes. Consider all the costs before you move to one of these cities, and understand that rates may change based on your family's income level.

Great Ways to Get Charitable Tax Deductions

Generally, when you give money to a charity, you can use the amount of that donation as a deduction on your tax return. However, not all charities qualify as tax-deductible organizations. While there are many types of charities, they must all meet certain criteria to be classified by the IRS as tax-deductible organizations. There are legitimate tax-deductible organizations in many popular categories, such as those listed below.

A Freelancer's Guide to Taxes

Freelancing certainly has its benefits, but it can result in a few complications come tax time. The Internal Revenue Service considers freelancers to be self-employed, so if you earn income as a freelancer you must file your taxes as a business owner. While you can take additional deductions if you are self-employed, you'll also face additional taxes in the form of the self-employment tax. Here are things to consider as a freelancer when filing your taxes.

Tax Deductions for Voluntary Interest Payments on Student Loans

Most taxpayers who pay interest on student loans can take a tax deduction for the expense ? and you can do this regardless of whether you itemize tax deductions on your return. The rules for claiming the deduction are the same whether the interest payments were required or voluntary.

Tax Tips for Uber, Lyft, Sidecar and other Car Sharing Drivers

When you're a driver for a ride-sharing company such as Uber, Lyft, Sidecar, or other car sharing service, the most important thing to understand about your taxes is that you are probably not an employee of Uber, Lyft or Sidecar. Drivers for these companies are usually independent contractors, a fact that has tax implications, both at filing time and year-round.

Add a Comment

*0 / 3000 Character Maximum