Reduction of mortgage interest deduction not seen as significant threat

Should President Barack Obama’s $450 billion jobs bill pass as proposed, it will in part be paid for by a reduction in the amount of mortgage interest homeowners can deduct from their income taxes. How the reduction would affect each household depends on the size of the mortgage. The general rule of thumb is, the higher your income and mortgage, the higher the deduction. For a married couple earning $250,000 or more annually and paying $10,000 in mortgage interest, the deduction would go from $3,300 to $2,800 under the proposal, which equals a 5% reduction. Burns & Co. President Paul Burns says a reduction of that size shouldn’t do too much damage to housing demand. “If they did away with the deduction completely, it would certainly have an adverse effect on us. But as it’s proposed, I don’t think that’s really going to make or break us,” Burns says. Regions Bank Mortgage Production Manager Sharon Jenkins agrees, but adds that it’s hard to predict how the public would react to such a move. “Generally, the deduction isn’t something that is going to cause someone to buy or not buy a house, but it does make them feel better about the purchase if they’re in line for a nice deduction,” she says. The interest deduction is available to anyone who borrows up to $1 million for a mortgage, including for a vacation home, or takes as much as $100,000 in a home-equity loan. More than three-fourths of taxpayers do not itemize and as a result do not claim the deduction. To read the rest of this week’s Real Estate Weekly, click here.