Sunday, February 27, 2011

Chipping Away

The budget President Obama recently sent to Congress begins the process of ultimately doing away with the tax deduction for mortgage interest. In its place, he is recommending a tax credit. His 2012 budget would place limits on the amount of mortgage interest a family …wait for it…making more than $250,000.00 annually can deduct.

Currently, one may take a deduction for mortgage interest paid on their primary residence and second home, first mortgage and second mortgage/HELOC. The loan amount must be $1 million or less on the 1st mortgage and $100,000.00 or less on the second mortgage/HELOC.

President Obama wants to change the deduction to a maximum credit of up to $5,000.00. The loan limits would be lowered to $500,000.00 on first mortgage loans and be eliminated for second mortgage/HELOC loans.

The straight up explanation is - this will put more negative pressure on a real estate market which does not need any more negative pressure. With values dropping across the country and underwriting guidelines becoming stiffer, the American home buyer has lost a lot of incentive to purchase a house. This proposal, aimed at higher priced homes, does nothing to encourage somebody to buy in this price range, thereby inhibiting the market further.

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