Make us your home page

Deducting mortgage interest? That could change

WASHINGTON — You might assume that during August, with the Senate and House on summer break, nothing much happens on Capitol Hill.

But that's not quite the way it works. Committee staffs, economists, tax lawyers and policy shapers never really leave town. For example, this month the nonpartisan Congressional Budget Office delivered its latest revenue-raising options for Senate and House consideration as their members write this fall's tax and budget legislation.

Tucked away in the report are several incendiary plans that could — if adopted — cost homeowners billions of dollars. Though not formal legislative proposals, the CBO's options represent a handy fiscal menu for legislators to pick and choose from to reduce the deficit — now at unprecedented levels — or to pay for new programs they might want to advance.

Tops on the CBO's list for housing: slash deductions for homeowner mortgage interest from the present $1.1 million limit to $500,000, phased in with $100,000 annual reductions starting in 2013 and extending to 2019. Under current law, taxpayers can write off mortgage interest on their principal home debt up to $1 million, and on home equity debt up to $100,000.

Under the CBO's option, that maximum mortgage debt amount would shrink yearly until it hit $500,000. Over a 10-year period, this change alone would boost federal tax collections by an estimated $41 billion.

The CBO offered up a second option if Congress wants to raise a lot more money: replace the current mortgage interest deduction with a flat 15 percent tax credit for everybody with mortgage amounts below the declining limits in the first option. Rather than taking write-offs that are tied to your personal income tax bracket, every homeowner would get a credit worth 15 percent of mortgage interest paid.

Who would benefit? Primarily lower- and moderate-income taxpayers who don't itemize on their returns.

Who would pay more? People with big mortgages and higher-than-average incomes, who are far more likely to itemize under current rules.

Credits reduce taxes dollar for dollar at the bottom line of returns. Deductions, by contrast, are tied to taxpayers' marginal brackets. The higher the bracket, the bigger the percentage of the write-off.

The CBO notes that this idea is not something it just dreamed up. Four years ago, a tax reform advisory commission appointed by President George W. Bush came up with a similar recommendation to transform the mortgage deductions into a credit. The attractiveness of the credit concept is both fiscal — it raises a boatload of new money for the government — and social.

Besides raising $13 billion in 2013, CBO estimates that moving to a credit approach would increase revenues by nearly $390 billion between 2013 and 2019. Equally important, the credit plan would also please critics who say the current tax system shortchanges lower- and moderate-income homeowners, and encourages Americans to overspend on massive houses loaded down with monster-sized mortgages.

Though the CBO concedes this option might have negative side impacts on the real estate market — fewer sales, less money spent on construction, lower home values at the upper end — it's not clear what effect it would have on the national rate of homeownership. Why? The report notes that Canada, the United Kingdom and Australia all have roughly similar homeownership rates as the United States, but none provide mortgage interest tax deductions.

Other housing-related items on the CBO's revenue-raising target list:

• Get rid of all write-offs for state and local taxes, including property taxes. That would pump $343 billion into federal coffers between 2010 and 2014, and $862 billion by 2019.

• Clamp a 15 percent cap on the value of all itemized deductions — not just mortgage interest and property taxes but charitable contributions, medical expenses and casualty losses. The revenue windfall: $1.3 trillion over 10 years.

• Revert to the capital gains approach that prevailed before 1987. Rather than taxing most gains at 15 percent as the current code does, the CBO plan would exclude 45 percent of gains from taxation, and tax the remaining 55 percent at an individual's regular tax rate. New money raised: $48 billion over the next decade.

Where's all this headed? That depends. The mortgage interest deduction has been a political no-go zone for decades. The same goes for local property tax write-offs. But with billowing deficits, and trillions to raise to help pay for health care reform and the economic stimulus bills, somewhere, somehow, Congress is going to be pressed to raise revenues.

Even no-go zones could get new scrutiny.

Ken Harney can be reached at

Deducting mortgage interest? That could change 08/28/09 [Last modified: Friday, August 28, 2009 4:30am]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Special to the Times.

Join the discussion: Click to view comments, add yours

  1. Appointments at the Crisis Center of Tampa Bay and World of Beer highlight this week's Tampa Bay business Movers & Shakers



    Tampa Bay Watch, Inc., a 501 (c)(3) non-profit organization dedicated to the protection and restoration of the marine and wetland environments of the Tampa Bay estuary, has announced two new employees. Pamela Arbisi is the new development director. Her responsibilities include …

    Scott Bendert has joined the Crisis Center of Tampa Bay as the non-profit organization's Chief Financial Officer. [Company handout]
  2. Tampa's Homeowners Choice seeks to offer flood insurance in other states


    Tampa-based insurance company HCI Group Inc.'s subsidiaries are trying to expand their flood insurance offerings beyond Florida. HCI has filed with regulators to offer flood coverage in Arkansas, California, Maryland, North Carolina, New Jersey, Ohio, Pennsylvania, South Carolina and Texas.

    Tampa-based HCI Group is trying to expand its flood insurance offerings to other states. Pictured is Paresh Patel, CEO of HCI Group. | [Courtesy of HCI Group]
  3. Home of Tampa Bay Lightning GM Steve Yzerman hits market at $3.45 million

    Real Estate

    TAMPA — The Davis Islands home of Tampa Bay Lightning General Manager Steve Yzerman is back on the market for $3.45 million after a brief hiatus.

    The Davis Islands home of Tampa Bay Lightning General Manager Steve Yzerman is on the market for $3.45 million. [Courtesy of Hi Res Media]
  4. Trigaux: Halfway through 2017, a closer look at six drivers of the Tampa Bay economy


    We're nearly halfway through 2017 already, a perfect time to step back from the daily grind of business and ask: How's Tampa Bay's economy doing?

    Is there one theme or idea that captures the Tampa Bay brand? Not really but here's one possibility. The fun-loving annual Gasparilla "Invasion" of Tampa is captured in this photo of 
The Jose Gasparilla loaded with pirates of Ye Mystic Krewe of Gasparilla on its way this past January to the Tampa Convention Center. In the future a vibrant downtown Tampa or St. Petersburg may be the better theme. [CHRIS URSO   |   Times]
  5. Will new laws protect condo owners from apartment conversions and rogue associations?

    Real Estate

    Danny Di Nicolantonio has lived in St. Petersburg's Calais Village Condominums for 33 years. Annoyed at times by the actions, or inaction, of the condo board and property managers, he has complained to the state agency that is supposed to investigate.

    That has left him even more annoyed.

    A bill passed by the Florida Legislature would affect places like The Slade in Tampa's Channelside district, where condominium owners have battled a plan to convert homes into apartments.
[Times file photo]