Tax Reform - Limit of Mortgage Tax Deduction
A committee appointed by President Bush has come up with an
alarming recommendation. They want to limit the tax deduction
for mortgage interest!
Reform
Following his re-election, President Bush set up an aggressive
agenda in which he hoped to reform social security and the tax
code amongst other things. As with many things in the political
world, this sounded easier done than it really was. With social
security, political forces have forced the President to pull
back from private accounts. With tax reform, a similar political
and practical mistake is being made.
Limited Deduction
The bipartisan tax reform committee appointed by President Bush
is making a mess of things. They are proposing the elimination
of the Alternative Minimum Tax, which is clearly a good thing.
Unfortunately, they are also proposing a limit on the tax
deduction you can take for mortgage interests.
Although the final recommendations are not yet published, leaks
have led to the belief the tax reform committee is going to
propose the mortgage interest tax deduction be limited to the
percentage of any loan that the Federal Housing Administration
would write. Put another way, you would only be able to
write-off interest on the first $315,000 of a mortgage! On top
of this disaster, the committee is proposing to eliminate the
deduction for property taxes.
Economic Disaster?
The implementation of the above recommendations would be an
economic disaster for the United States. The real estate
industry would suffer incredibly and the real estate boom would
become a bust. In many parts of the country, a single family
home averages well over $315,000. In San Diego, the average cost
of a home is in the $600,000 range. To get into such homes, many
families apply for interest only loans to make ends meet. If
they lose half of the interest deduction, default will not be
far behind.
Once again, we are faced with a situation where politicians just
don't get it. Our housing market is incredibly strong and they
want to throw a wrench in the process. Developers and homeowner
associations have vowed to fight this "tax reform". You should
as well if losing half of your deduction troubles you.