Generally analysts agree that while the homebuyer tax credits appeared to increase sales, in reality, they primarily succeeded in pushing sales forward. After each tax credit ended sales plummeted and stayed down there for months afterward. In fact the Purchase Index just topped last May's record two weeks ago. Sales dropped and stayed down there after the April home buyer tax credit ended.
So the more likely issue to hit the floor of the House and Senate in 2011 is whether or not the mortgage interest deduction will survive and in what form. The heads of the deficit-reduction commission want to do away with the mortgage interest deduction as we now know it. They want to turn the deduction into a 12 percent non-refundable tax credit that will be available to all. They also want to cap the allowable mortgage size to $500,000 and deny the write-off of interest for second homes and equity loans.
What does this mortgage interest deduction cost the U.S. Treasury? The estimated costs are $131 billion per year. Right now, taxpayers who itemize their deductions can deduct the interest on their mortgages of up to $1 million on both their principal and second residences. They can also deduct the interest on equity loans of up to $100,000.
This isn't the first time politicians tried to tamper with the popular mortgage interest deduction. In fact it was as recently as 2005, when President George W. Bush's Advisory Panel on Federal Tax Reform recommended cutting the deduction to help pay for lower income-tax rates. Lawmakers didn't even touch that controversial plan.
Opposition from the housing industry for this popular deduction will likely reduce any chance of the drastic change now being proposed by the deficit commission, but since Congress is in the mood for deficit reduction after this last election, a change could be made. But that change will more likely be a cap on the amount of interest to be deducted, rather than a total redesign of the deduction.
Lita Epstein has written more than 25 books including "The Complete Idiot's Guide to Tax Breaks and Deductions" and "The Complete Idiot's Guide to Improving Your Credit Score."
For insights on mortgages and taxes see these AOL Real Estate guides:
- Four Ways to Benefit From a Cash-In Refinance
- How to Lower Your Property Taxes
- After the Homebuyer Tax Credit: Mortgage Tax Deductions
More on AOL Real Estate:
Find out how to calculate mortgage payments.
Find homes for sale in your area.
Find foreclosures in your area.
Get property tax help from our experts.