Mortgage tax break may be on the chopping block, leaving the housing recovery in question.

Could vacation home or high end communities across Central Florida suffer if the government eliminates the mortgage interest deduction?

FOUR CORNERS – For years, Central Florida’s economy boomed thanks to “growth” – the notion that people moving to this region needed new homes, so builders stayed happily employed constructing developments to meet their needs.
The state and national housing market still haven’t recovered from the bursting of the bubble in 2008 that left the state with one of the highest home foreclosure rates in the country, and the climb back to a stable market has been slow and painful.
Even so, any signs of a possible threat to the market make local Realtors feel nervous, and that’s certainly true with a proposal by a federal deficit reduction commission to take aim at the mortgage interest deducation that homeowners now take advantage of.
This deduction allows taxpayers who own their homes to reduce their taxable income by the amount of interest paid on their mortgage. The White House’s deficit reduction commission has proposed gutting some tax breaks, including the mortgage interest deduction, as a way to close the nation’s skyrocketing budget deficit.
That’s a proposal that some real estate agents worry may be misguided at a time when the housing market still hasn’t recovered.
“As far as homeownership, one of the sticking points for us is the mortgage interest deduction,” said Pete Howlett, a Davenport Realtor who runs Orlando Vacation Realty. “The government is thinking about getting rid of that, and that may impact the tax deductibility of people’s homes. That’s something they’re kicking around, and we’re pretty concerned about that.”
It should be a concern to Central Florida, said Matthew Bell, managing member of the CPA firm Bell & Van Grondelle in Four Corners.
The two groups most likely to be impacted, Bell said, are people who own vacation homes, and those in communities where houses start at $500,000 and up – both of which are easy to find in Central Florida.
“Probably 80 percent of the clients that we deal with get some kind of benefit from the mortgage interest deduction,” Bell said. “That is one of the factors that goes into play when Realtors talk to clients about buying a home. From what I can see, what they’re proposing is not really going to affect rental homes so much. That would be considered a necessary business expense.
“But it would apply to people who buy vacaction homes that they’re not renting out,” Bell added. “And I’m sure there are plenty of them.”
Four Corners has been a popular spot for vacation homes among British and other European buyers. But Bell added that the tax policy change, if enacted, “would actually affect Americans even more than folks overseas, because normally Brits are not going to have any other income they need to offset from vacation homes. But Americans want to be able to deduct the mortgage interest from a vacation home off their income taxes. That deducition would go away if this proposal went through. I certainly think it could hurt this area.”
The proposal, Bell said, also appears to be targeting high end developments.
“They (homeowners) would only be able to deduct the mortage interest on their primary residence for homes under $500,000,” he said. “Look at the New York or New Jersey metropolitan area where housing is very expensive, and those people would lose their mortgage interest deduction on their most expensive homes.”
It could also impact high end luxury developments in Central Florida, he said.
“Take, for instance, Bella Collina in Lake County,” Bell said. “There’s homes in there that at one pioint sold for over $5 million. People looking to possibly repurchase those homes, that will slow the redevelopment of those communities.”
State Rep. Mike Horner, R-St. Cloud, said he would need to research the issue some more before commenting on how it could impact Central Florida.
But he added that it points up two huge challenges for Congress and the White House: how to bring down the deficit without doing something that hurts the economy in the short run – such as raising taxes.
“We’ve got an exploding federal deficit and completely unmanaged debt that is ruining our country’s financial security,” Horner said. “I’m for things that reduce the deficit.”
But at the same time, he added, eliminating the mortgage interest deduction could simply amount to a tax hike for homeowners.
“I’m against raising new taxes,” he said.
Peg Dunmire, chairman of the Florida Tea Party and host of the Lady Liberty Hour, said she also opposes tax increases. But she said eliminating not just the mortgage interest tax deduction but also scores of other special interest tax breaks could solve a larger purpose: to eliminate the federal government’s ability to use tax policy to control people’s decision-making.
“Actually, the mortgage interest deduction is a common example of corporate welfare,” Dunmire said. “Anybody who has a home has been able to deduct the interest for many years. It used to be that all interest for any source of borrowing was a deduction. When people purchased cars, when they had credit cards, everybody was always able to deduct their interest. That changed in the 1980s when they redid the IRS code, and then it only got limited to mortgages.”
Getting rid of this deduction won’t do much to eliminate the federal debt, Dunmire added, but it could help empower consumers if the federal government took a cue from the Tea Party and instead adopted a Fair tax, or tax on goods sold – a kind of national sales tax that eliminates the complexities of today’s lengthy tax code.
“I don’t look at it as a rich versus poor issue, as much as what are we trying to do with our society,” Dunmire said. “What are we trying to encourage? In the past, we as a society have tried to really encourage home ownership, but I personally think they should look at all the ways the government has tried to influence the housing market — and made a mess of it. I am an advocate for the Fair Tax. I am all for doing away with all of these deductions, which are the government trying to make decisions on how we live, rather than all of us deciding how we live. This is all about a government policy to have you behave in a certain way. We are using our government policies to influence how people make decisions, and it corrupts and alters sound decision making.
“The way it is now,” Dunmire added, “the tax codes are designed for special interest groups. It is being done for all the wrong reasons. With the end of these tax deductions, no one is a special interest anymore. We’re all just consumers.”

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