ORLANDO, Fla. – Dec. 7, 2010 – Losing the mortgage interest deduction as proposed recently by the National Commission on Fiscal Responsibility and Reform would do more than hurt taxpayers – it would also devalue homes and could even impact Florida home sales. The tax benefit of homeownership has long been touted as an advantage to buying property. Without that benefit, the value of homeownership declines.
“It’s quite clear: We can’t afford to lose the mortgage interest deduction,” says Florida Realtors 2010 President Wendell Davis. “The real estate industry – still struggling to get on its feet – would take yet another hit if some homebuyers decide it makes more sense to rent rather than buy. The loss would also hurt small businesses as homeowners cut back on spending; and it would hurt the state when sales tax revenue drops.”
In 2008, about 2.2 million Florida taxpayers claimed a mortgage interest deduction on their federal taxes, representing a total tax deduction of about $29.5 billion statewide, or roughly $13,375 for the average taxpayer who had a mortgage. Assuming a marginal tax rate of 25 percent (tax bracket), that mortgage interest deduction translates into an actual tax savings of $3,344 for the average taxpayer.
While it’s unlikely that the federal government would get rid of the mortgage interest deduction for all homeowners, the commission’s recent deficit reduction report recommended that second homes and equity be removed from the program.
“Any decrease in the mortgage interest deduction would result in slowing our already struggling economy,” says Davis. “Go to the Realtor Action Center and follow the instructions to call your representative’s office and let them know that Realtors in Florida are opposed to reducing the mortgage interest deduction!”
Property tax deduction
Another proposal to cut the federal deficit would change the way the IRS allows individuals to deduct real estate taxes from their federal taxes. Currently, real estate taxes can be deducted from income; but under the recent deficit-reduction proposal, they would not. This, too, would impact Floridians.
According to NAR research, about 2.4 million Floridians claimed the real estate tax deduction in 2008 totaling about $10.7 billion. To the average taxpayer, that represents a tax deduction of $4,506. In real dollars – and again assuming a marginal tax rate of 25 percent – that translates into a savings of $1,127 per taxpayer.
Effect on home prices
Proposed changes to the mortgage interest deduction and real estate tax deductions are not one-year events, however. While NAR looked at 2008 data, Americans pay taxes every year, and the deductions could be lost forever. As an ongoing expense imposed only on homeowners, it would raise the cost of homeownership and even tip the scales toward renting in some cases.
With that in mind, NAR extended the numbers and determined that the average Florida home would lose 17 percent in value. It based that estimate on a median home price of $130,800 in the third quarter of 2010. At 17 percent, that comes out to a $22,645 loss on the average home.
Proposed changes
It’s unclear how the U.S. Congress will move forward to cut the deficit. The bipartisan commission established by President Obama voted 11-7 in support of its final report; however, that number falls short of the super majority (14 out of 18 votes) needed to automatically send the recommendations to Congress. Still, the recommendations are considered a blueprint for possible action.
In its report, the commission recommended turning the mortgage interest deduction into a tax credit, capping eligible mortgages at $500,000 and completely eliminating tax benefits for second homes and home equity loans.
© 2010 Florida Realtors®
Reprinted with permission. Florida Realtors®. All rights reserved.
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