Last week I talked about the Mortgage Credit Certificate, I thought it only fitting to let you know this week that the mortgage interest deduction is one of the items Congress is looking at in order to do something big with the nation’s debt instead of just a band aid. The mortgage interest deduction cost the Treasury Department somewhere between $80 and $130 billion in 2010 and over a 10 year budget window is estimated to exceed $1 trillion. So it’s safe to say it probably will change in some fashion if not totally disappear.
The Urban-Brookings Tax Policy Center estimates that if the deduction were totally elimiated the average tax bill of those claiming the mortgage interest deduction would increase by $710. Keep in mind that is an average so those with $40,000 in income would face an increase of approximately $70 while those with $1 million would face an increase of approximately $4,000.
Given the popularity of this deduction and the power of the Real Estate lobbyists it seems doubtful that the deduction will totally disappear but we might see a 20% nonrefundable credit. Remember last week’s discussion on the Mortgage Credit Certificate? If this option were to take effect then a Credit Certificate would not be necessary and everybody would get the 20% Credit, it would not be refundable. Meaning that if your tax liability is less than 20% of your mortgage interest you would not get a refund for the excess. And the amount financed would be limited to $500,000 instead of the current million.
Another option might be a flat credit for home owners, regardless of whether their home is debt-financed. There isn’t much information on this option so not much can be said until the amount of the credit is mentioned and if there will be limits on certain income levels.
It will be interesting to see what happens in the next few weeks.