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The Importance of Preserving Homeownership Tax Benefits

The federal budget process for next year began with earnest, as Senate and House committees recently convened to reveal their fiscal plans for 2014. Each plan has established a foundation in which fiscal responsibility will help restore our economic standing. However, representatives within the real estate industry have urged Congress to avoid Federal tax provisions that affect the housing sector. Comprehensive cuts, particularly those to homeownership tax benefits, may serve to harm the housing sector just as it is primed to remove us from our economic lull.

Rep. Paul Ryan (R-Wis.), chairman of the House Budget Committee, has recently submitted a plan that would bring the federal budget into balance over a period of ten years by limiting spending to about 19 percent of the gross domestic product (GDP).

The Senate’s plan, currently being orchestrated by Sen. Patty Murray (D-Wash.), has proposed to reduce our debt by approximately $1.85 trillion. Under the parameters of their proposal, half of the reforms will come in the form of cuts, while the other half stems from new revenue. New revenue would be the direct result of changes to the tax code, including closing “loopholes” and “eliminating wasteful spending in the tax code.”

Significant revisions to the current tax code, affecting homeownership tax benefits, may stifle economic growth. Tax incentives that homeowners are currently receiving help to facilitate ownership, establish wealth, and provide stability. Converting these policies to fit within the parameters of a new budget could harm potential homebuyers, while simultaneously jeopardizing the upward trend of our economy.

Gary Thomas, the National Association of Realtors (NAR) president, recently testified before the U.S. House Ways and Means Committee to express his opinion over the proposed budgets. Thomas acknowledged his concern regarding Federal tax provisions that could affect homeownership tax benefits; informing Congress how necessary such incentives are for rebuilding the national economy. Additional taxes initiated during a time in which the housing sector remains fragile can crush the real estate market. Similarly, removing homeownership tax benefits can prove equally troubling.

“Realtors know that homeownership is an investment in your future and for many people, owning a home helps them gain a foothold into the middle class,” said Thomas. “NAR remains committed to preserving the current tax measures for homeownership so that millions of Americans can continue to build the kind of financial security that owning a home can provide.”

Thomas indicated that the NAR will continue their fight to maintain the following homeownership tax benefits:

  • Mortgage interest deduction
  • Capital gains exclusion on the sale of a principal residence
  • Deduction for mortgage insurance premiums on private mortgage insurance and FHA-backed insurance
  • State and local property tax deductions
  • Carried interest on commercial real estate

Thomas continues to emphasize the importance of maintaining these programs, particularly the current deduction for home mortgage interest. The preservation of this program is imperative to the middle class, as it permits more families to become homeowners. Sixty five percent of families who claim it earn less than $100,000 a year, particularly benefiting younger middle-class families.

According to Thomas, “The mortgage interest deduction makes sustainable homeownership more affordable for millions of middle-class families; these families are the nation’s backbone. Protecting these hard-working Americans should be Congress’ top priority as it pursues comprehensive tax reform. On behalf of our one million Realtor members and millions of homeowners, we urge Congress to do no harm to housing.”

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