Home Mortgage Deduction No Longer Untouchable Builders, Real Estate Agents Rally To Defense Of Tax Break

With the congressional budget ax hovering over everything from school lunches to Medicare, could the tax break for Americans who are paying off home loans be next?

Home builders and real estate agents are worried that Congress may seek to reduce or kill the popular tax deduction for the interest that millions of American pay on their home loans - a break that’s helped to vault millions into the middle class.

Some congressional leaders - including Senate Finance Committee Chairman Bob Packwood, R-Ore., and Sen. Arlen Specter, R-Pa., who is also a GOP presidential candidate have suggested reducing the mortgage tax break to help pay for a proposed cut in the capital gains tax.

Another perceived threat to this coveted tax break comes from House Majority Leader Dick Armey’s proposal for a so-called “flat tax” that would scrap all deductions, exemptions, lawyers, tax tables and loopholes - including the home mortgage interest rate deduction.

Although housing industry leaders say the threat isn’t immediate, people like Alan Greenstein, president of the New York State Association of Realtors, worry that the home mortgage deduction has fallen off Congress’ list of longtime “untouchables.”

“It seems like everything has become fair game,” says Greenstein, who visited Washington recently as part of a campaign to fight any tinkering with the popular tax break.

Stephen Driesler, vice president and chief lobbyist for the National Association of Realtors, says: “When you’ve got people like the House Majority Leader, a GOP presidential candidate and the chairman of the Senate Finance Committee all talking about tinkering with the mortgage interest deduction, we think there’s reason now to be concerned.”

According to Driesler’s trade organization, more than 5.1 million taxpayers bought new or existing singlefamily homes last year - and about 24 million American families each year take advantage of the mortgage interest deduction.

IRS spokesman Steve Pyrek says that in 1993 - the latest year for which figures are available - there were 23.6 million income tax returns that claimed mortgage interest as an itemized deduction.

The deductions added up to $157.8 billion.

But advocates for shrinking the interest deduction on home loans say that in an era of hefty federal budget deficits, the nation can no longer afford to give the tax break to higherincome people who can afford to borrow $1 million for a home.

Taxpayers may now deduct annual interest payments on mortgages of up to $1 million in value. Packwood has suggested he might seek to lower that $1 million ceiling to $250,000.

But Greenstein says that would wreak havoc in urban housing markets like Manhattan, where property costs much more.

“I’m sure that in Packwood’s district, a $250,000 mortgage financing buys a lot. In the New York area, it doesn’t. In Manhattan, $250,000 is very little,” Greenstein says.

Flat tax advocates, meanwhile, say completely restructuring America’s income tax system - by setting one tax rate for all and eliminating all deductions including the one for mortgage interest - would end up helping more Americans in the end.

Tax breaks like the mortgage interest deduction, they say, wouldn’t be needed because the tax rate - the percentage of income one must pay in taxes - would be lower than it is now and the average consumer would pay less to the IRS each year.

Under the current tax system, owning a home has become the best way for many taxpayers to lower their income tax bills.

For example, the average mortgage interest deduction was about $7,300 in 1992 - the most recent year for which figures are available. The Realtors’ association says 46 percent of total mortgage interest deductions last year were claimed by taxpayers with incomes of less than $50,000 a year.

Greenstein says that he and other Realtors and home builder groups from across the country have kicked off a campaign to protect the popular tax break. They take nothing for granted as Congress looks for every possible cut.