Second Home Mortgage Deduction Could Be Eliminated
Our current tax code allows taxpayers to deduct mortgage interest on their second homes and home equity loans. Recently, a bipartisan fiscal reform commission has mentioned the possibility of eliminating the mortgage interest deduction on second homes as a way of reducing our massive deficit. Even Republican presidential candidate Mitt Romney has floated the idea as part of a larger tax reform package.
The Tax Policy Center estimates that repealing the deduction for second homes and home equity could raise $70 to $80 billion over ten years, depending on whether the 2001 and 2003 tax cuts will be extended. However, the National Association of Realtors believe that the prevailing view that eliminating the second home mortgage interest deduction would raise a significant amount of money from high-income taxpayers could be somewhat unfounded. Their research shows that a substantial portion of second home owners earn between $40,000 and $200,000 per year. So, repealing the deduction may have the unintended consequence of impacting middle class taxpayers more than upper-income taxpayers.
Further, I haven’t heard any comments on the impact of the elimination of the deduction for second home mortgage and home equity loans on the overall housing market. With signs indicating that a fledgling recovery might be underway in the U.S. housing market, one has to wonder if repealing this deduction could possibly derail it.