As the nation heads toward the so-called fiscal cliff, the potential elimination of the mortgage interest deduction could give homeowners and potential homebuyers big challenges. NY1's Monica Brown filed the following report.
As President Barack Obama and congressional Republicans continue to square off on how to control the federal deficit, one tax break that might be on the chopping block is the mortgage interest deduction.
"The current law allows $1 million worth of mortgage debt, plus $100,000 of home equity,
totaling $1.1 million," says John Lieberman, of the New York State Society of CPAs. "So whatever the total amount of interest is on $1.1 million is what is allowed by law."
But reducing or eliminating that tax break is one of the options being talked about as the nation heads toward the so-called "fiscal cliff", the January 1 deadline when a series of tax increases and spending cuts are set to kick in unless Congress can reach a deal.
The mortgage interest deduction is a big benefit for middle-class homeowners who itemize at tax time, and mortgage lender Melissa Cohn, the executive vice president of "Guaranteed Rate", says that's the tax bracket it will hurt the most.
"Very important to the middle class," Cohn says. "If your income is less than $140,000 a year, you basically get a dollar for dollar deduction for the mortgage interest you pay."
If it goes away, current homeowners will see higher taxes and lower household income. There's also a greater worry: a possible hit for a housing market that’s only seeing slow signs of recovery.
"What this will do is most likely, if they take the deduction away, will limit the number of people that are eligible to own a home, and more importantly, with less applicants and less buyers, that would have an adverse impact on the real estate marketplace," Lieberman says.