Tick. Tick. Ticktickticktickticktickticktick.
That might be the sound of the fast-approaching deadline for the federal government to raise the national debt ceiling prior to a default on the government's obligations.
Homeowners, homebuyers and home sellers might well wonder what that has to do with real estate, housing or mortgages; however, one possible answer is the mortgage interest deduction, a cherished line item on many homeowners' federal income tax returns.
To steal a turn of phrase from the National Association of Realtors, the deduction is believed to be "in play" as part of the deficit reduction talks that have become tangled up in the debt ceiling debate.
While the crisis unfolds, homeowners have little information about what, exactly, is contained in the multiple debt and deficit proposals. Indeed, as the Realtor group noted, the negotiations "continue to generate rumors, inconsistencies, uncertainty and contention."
What is known is that the mortgage interest deduction has been on the table at least since December 2010, when President Barack Obama's Commission on Fiscal Responsibility and Reform, known as the Deficit Commission, recommended that the deduction be repealed, capped, eliminated for second homes or turned into a tax credit.
Realtor groups are quick to argue that the deduction, which they refer to as "the MID," is a powerful way to encourage people to buy and own their own homes. That explains why these groups have issued multiple "calls for actions" to their members, warning that real estate's most sacred cow is at risk of slaughter.
Of course, many taxpayers don't own a home, don't itemize their tax deductions, own a home but don't have a mortgage, or own a home and have a mortgage, but pay only little interest and don't have enough itemized deductions to exceed the standard deduction. None of those folks benefits directly from the mortgage interest tax break. That said, however, many homeowners do itemize and take advantage of it. Depending on the size of the mortgage and the interest rate, the savings can be substantial.
Still, critics also point out that the deduction is an expensive missed opportunity for the federal government to collect more tax revenue. Opponents also say the deduction is an unwarranted perk for people who just happen to own their own home.
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