Monday, July 25, 2011

Home Mortgage Interest Deduction is on the table.

The mortgage interest deduction costs the U.S. Treasury about $100 billion a year. The Obama Administration is now proposing to either reduce the cap to $500,000 and/or to eliminate the deduction on second homes. Eliminating the deduction on second homes would save about $15 billion, and reducing the cap to $500,000 would save another $15 billion, according to economist William Wheaton at MIT. 10.5 percent of existing home sales in June were of homes over $500,000 according to the Mortgage Bankers Association.   
Then there's the idea from the President' bipartisan commission of turning the interest deduction into a 12 percent credit, limited to $500,000 in mortgage debt, only on primary residences. That could save the Treasury $65 billion.
Eliminating the deduction all together will create havoic in the already volitale housing market and economy.
Interesting, in Canada, they don't have a mortgage interest deduction on personal residences, but they do on investment properties; this makes a lot more sense to me, as it is a business expense. It also fosters investment in housing, which is precisely what the U.S. could use more of right now.
  (Exerpts from D. Clark - CNBC Real Estate Reporter)