Could An Interest Deduction Cap Send Housing Over The Fiscal Cliff?

As Americans move closer to the fiscal cliff, some analysts are speculating about how cuts will impact the housing industry.  In 2012 both Republicans and Democrats have toyed with the idea of capping how much mortgage interest and property taxes some homeowners can deduct on their taxes and that has some people alarmed.

The Face of Things To Come?

In recent weeks President Obama has proposed implementing a cap on how much mortgage interest high-income homeowners can deduct on their taxes.  Under his plan, single homeowners earning more than $200,000 in adjusted gross income and married couples earning more than $250,000 (filing jointly) would face caps on how much mortgage interest they could deduct on their taxes. Property tax write-offs would also be impacted. The President and other proponents of the plan argue that by restricting tax write-offs for the wealthiest Americans those who most need it — middle-class Americans would be able to keep their write-offs in place and survive the long lasting recession.  But critics fear that such a change would negatively impact housing values. They argue that high-income homebuyers may be discouraged from purchasing a home especially in expensive locales where renting is significantly less expensive than owning a home.  They also argue that once the number of buyers reduces significantly housing prices will tumble. But proponents of the interest deduction cap contend that capping the deductions of the wealthiest Americans will give the government the revenue necessary to prevent a fiscal disaster while also protecting the most financially vulnerable.