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.