SFGate: Many homeowners need tax break on interest

Please keep the tax break on interest.
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Sunday, February 20, 2011 (SF Chronicle)
Many homeowners need tax break on interest
Mary Kay Yamamoto


Rachel and Edward Medak have a major stake in the debate over the future
of the mortgage interest deduction. Rachel, 32, is an insurance broker in
San Francisco. Her husband, Edward, is 30 and works in technology sales in
Palo Alto. The couple, who have one child, purchased their first home in
Novato in 2007 for $640,000 with 100 percent financing. "We were renting
at the time," she recalls. "Thanks to the deduction, we could afford the
monthly mortgage payments and keep our taxes under control. But if we lose
this tax break, we would be at a big financial disadvantage."

The tax break that's been associated with homeownership since 1913 can no
longer be taken for granted. Six years ago, a tax reform commission said
the deduction should be terminated, and legislation was introduced in
Congress to do just that. Last December, another government commission
said the benefit should be scaled back. There's a growing buzz on the
Internet and in the media that it may be time to "retire" this 98-year-old
provision of the tax code.
As the new Congress settles in, this is a perfect time for a reality check
about the true impact of the federal mortgage interest tax deduction. You
could be surprised by how it provides important benefits beyond the
housing market that, like a river, nourishes others along its banks.
Reality No. 1: Let's be clear who benefits from the deduction, and how.
More than 38 million people claimed the deduction in 2008, two-thirds of
whom were middle-income wage earners; 65 percent of the families who took
the tax break make less than $100,000 a year. In 2008, the average
taxpayer deducted $12,200 from their taxable income, thus saving $3,050 in
taxes. Nationwide, this deduction will cost $131 billion in forgone
federal revenue in 2012.
Reality No. 2: The deduction provides stability. Individuals can enjoy
steady and predictable housing costs thanks to the deduction that allows
them to own a home. That's because a fixed-rate mortgage payment might not
change for 15 to 30 years, while rent typically increases 3 percent a
year.
Reality No. 3: The deduction offers some relief to homeowners who cannot
obtain mortgage assistance elsewhere. The Medaks have tried without
success to convince their lender to modify the terms of their mortgage.
"We've gone back many times asking for help, and they keep telling us to
pound sand. We're the perfect example of the couple that makes the monthly
payments and want to keep their house. But the MID is the only break we
get from the system," Rachel said.
Reality No. 4: The deduction can be a home-purchasing catalyst that
creates a favorable economic ripple effect. It is estimated that every
home purchased pumps an additional $60,000 into the economy for furniture,
remodeling, painting, legal and other costs associated with the
transaction. For every 1,000 home sales, about 500 construction,
landscaping and other jobs are added to the economy.
Reality No. 5: Residential real estate is a powerful engine that helps
drive the American economy. It's so powerful that 8 of the last 10
recessions ended thanks to robust housing markets, according to Ronald
Phipps, president of the National Association of Realtors. It would be
folly to do anything that would discourage homeownership and lessen the
strength of this powerful restorative medicine.
Reality No. 6: Homeownership is a bedrock of our economy and the mortgage
interest deduction has become an important part of the nation's housing
foundation. While the purpose and effects of the deduction have evolved
over time, its role and impact today reflect the realities of the housing
market. We now buy homes to help meet different social, family and
personal goals. While individuals do not buy homes just because of the tax
break, the deduction does make it easier for them to buy in the first
place by helping to reduce carrying costs.
Those who want to tamper with the MID should be careful what they ask for.
"The finances of many families are as fragile as the California economy.
Neither can afford any more shocks or surprises," observes Stevens
Manning, the public relations chair for the North Bay chapter of the
California Association of Mortgage Professionals. "Pulling the plug on the
MID could lead to a tsunami of additional home foreclosures," he said.
These realities should serve as a wake-up call as the debate on the
mortgage interest deduction continues. Indeed, Congress should conduct its
own reality check, and closely examine the many benefits - both direct and
indirect - that flow from the mortgage interest deduction.
The final reality is this: Tens of millions of middle- and lower-income
families (and voters) who depend on the deduction today are hoping they
can rely on it tomorrow. For them, it's a matter of economic survival.

Mary Kay Yamamoto is the president of the Marin Association of Realtors. ----------------------------------------------------------------------
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