If the mortgage interest deduction is eliminated and the real estate industry is right, they will immediately lose $90,000 in valuation of their home, putting them upside down. In addition, they will lose about $500 per month in tax savings, thus reducing their ability to repay on a mortgage for a home in which they have no remaining equity position.
This is not some odd situation, but rather a very real circumstance facing huge numbers of $30 per hour two income families. Are these the rich that Washington is out to punish for their success?
Both sides of the home mortgage tax deduction issue have been covered extensively at http://blog.mortgagehelplosangeles.com over the past few weeks. While there are major arguments on both sides, there is one huge, overriding issue that must be addressed if this century-old-
We are a nation that was founded on the principle of justice. We are a nation of laws, and we can rightly expect the government to protect our investments, and not do things to destroy them. The elimination of the home interest deduction would effect homes valued at $500,000 to $1,500,000 as the interest deduction is capped for interest on loan amounts under $1,000,000, and homes of less value are not generally going to take schedule A.
If those homes drop 15% as suggested, a huge number of middle class home owners could see a $75,000 to $200,000 loss of value. That is significant, and would be a gross injustice. By the way, this could be compared to the change in depreciation rules that hit apartment and commercial property owners in the late 80's with a similar massive loss in valuations. Those lost valuations "TOOK" massive amounts of assets from those owners without compensation, destroyed the savings and loan industry, and cost to the government and the economy untold billions in unintended consequential losses.
A 15% reduction in the values of homes with values between $500,000 and $1.500,000 would also create a huge reverberation throughout the economy and further undermine Fannie, Freddie, FHA, and all mortgage lending institutions by putting another huge swath of homeowners into negative net worth territory.
As usual, most who write on this subject and seemingly our politicians, have a hard time seeing the downstream consequences of their actions. This decision is likely to cost the government more in the short term than it gains through taxation.