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Builders Join Mortgage Interest Deduction Debate

For homeowners concerned that Congress may throw the mortgage interest deduction out the window, a powerful industry group may come to their rescue: home builders.

At the International Builders’ Show in Orlando, the National Association of Home Builders made it clear that they’ll go on the warpath should President Barack Obama push to eliminate the deduction in his annual State of the Union address. “It’s clear there are a couple sacred cows in the tax code and the mortgage structure is one of them,” says J.P. Delmore, tax lobbyist for NAHB.

For the home builders, the motivation isn’t entirely altruistic: ending or reducing the deduction would likely be a direct hit to their bottom lines. Regardless, the group’s powerful lobby could be good for current and future homeowners.

Proponents of the deduction elimination say it would greatly reduce the national deficit; according to the nonpartisan Tax Policy Center, mortgage interest deductions in 2012 will cost the federal government about $131 billion. In December, the National Commission on Fiscal Responsibility and Reform proposed reducing mortgage interest deductions for a primary residence to 12%. Under that proposal, a married couple that earns a total income of $90,000 would have a tax credit of only $1,500 instead of $3,000 – or the equivalent of raising their monthly mortgage payment by $125, according to NAHB calculations.

The industry argues that eliminating the deduction doesn’t equal a definite deficit reduction and that it would hurt middle-income homeowners, particularly younger homebuyers and people looking to retire, says Robert Dietz, assistant vice president for tax and policy issues at NAHB. There’s also concern that eliminating the deduction would hamper home prices because homebuyers would see the loss of that deduction as an increase in a home’s price.

Though the proposal didn’t garner enough backing to pass during the lame-duck session (and previous efforts over the years have also failed), it’s spurred the industry into action. Already, NAHB has set up a website, savemymortgageinterestdeduction.com, and filled it with data and fact sheets on the benefits of such deductions. The National Association of Realtors, meanwhile, has aired ads saying the elimination would hurt hardworking families. Together, the two groups represent a powerful lobby; in 2010, NAR was the top political action committee contributor to candidates and NAHB spent $710,000 alone in lobbying efforts during the third quarter.

Readers, do you think Congress or the Obama Administration will push to reduce mortgage tax deductions? Without a deduction, would you still buy?


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Comments (5 of 78)

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    • Knocked my socks off with knwodlege!

    • I’m a first time homebuyer, who makes too much money to NOT own a house; but not enough to be able to afford a house w/o the tax break. If there was no tax break, what would be the benefit of buying a house, considering all the cost that goes into maintaining it and insuring it. I might as well continue to rent, as it would be cheaper in the long run.

    • As a home builder, I think it’s an idea whose time has come. Flush out the gimmicks.

    • This would be a most inopportune time for Congress to throw out the mortgage inderest deduction. Inopportune if they are interested in seeing the residential real estate market recover. it would be one more incentive to buy down the drain.

    • I’d buy but my buying power, and what I’d be willing to pay, would be significantly reduced. Eliminating the HMID would impact, home builders, sellers and real estate agents. New market entrants would simply adjust their purchase offers to reflect what the net monthly cost they can and are willing to pay for home, and since they will now be paying more income taxes, that amount will likely be reduced by the lost tax benefits.

About The Tax Blog

  • The Tax Blog brings together a team of award-winning tax journalists from the Dow Jones network and around the web to examine the tax issues, changes and legislation that affect families, investors and small business owners. Our contributors include Tax Report columnist Laura Saunders (WSJ), Tax Guy columnist Bill Bischoff and senior reporter Jilian Mincer (SmartMoney.com), retirement-focused reporter Anne Tergesen (WSJ), wealth management writer Arden Dale (Dow Jones Newswires), TaxWatch columnist Eva Rosenberg and personal finance reporter Andrea Coombes (MarketWatch), and reporter Alyssa Abkowitz (SmartMoney). They’ll provide the latest news and insight, mine the tax code for tips and loopholes, and answer your questions about tricky tax situations. Contact the The Tax Blog with ideas, suggestions or tax questions at thetaxblog@dowjones.com.