Mortgage Interest Deduction Escapes Ax For Now
The housing market and the housing industry have escaped the ax on several fronts now that lawmakers have at least partially resolved Washington’s “fiscal cliff” budget fiasco.
A bill passed by Congress to pull the nation back from the brink of end-of-year tax hikes and spending cuts contains several provisions that are favorable to housing.
The housing industry dodged a bullet on a big issue—potential limits on itemized deductions, including the cherished mortgage interest deduction. Last year, there was talk among politicians in both parties of capping those deductions at a particular level, and Republican presidential candidate Mitt Romney suggested several options, ranging from $17,000 to $50,000. But those limits did not come to pass as part of the fiscal cliff deal.
The pact does restore some limits on deductions that had been in place in the 1990s. But they apply only for individuals earning above $250,000 per year and couples earning above $300,000.
These limits reduce how much high-income taxpayers can claim for mortgage interest and other deductions. For example, a couple with a combined income of $350,000 would see their total itemized deductions fall by $1,500. That results from a formula that reduces the amount that can be deducted by 3% of the difference between the taxpayer’s income and the deduction cap. (In this case, $1,500 is 3% of the $50,000 difference between $300,000 and $350,000.)
“This is a meaningful win for the housing lobby generally and, more specifically, the mortgage insurance industry,” according to Issac Boltansky, a Washington analyst with Compass Point Research and Trading.
However, analysts still believe the mortgage interest deduction could be altered as Congress continues to look for ways to save money. Mr. Boltansky says, “While the mortgage interest deduction avoided a direct hit this time around, we doubt it will dodge Congressional scrutiny going forward.”
As always, we will keep you up to date on any further mortgage interest deduction talks that may come out of Washington in future discussions.