The president has a tax advisory panel which is currently looking into ways to reform the tax code. One of their goals is to get rid of the Alternate Minimum Tax, which was poorly designed in the first place and has become an increasing problem, but before they can eliminate it, they must first offset it with taxes from another source. This is one of the things they are considering:
The commission has been talking about ways to limit the mortgage-interest deduction without stepping on too many toes. Right now, Americans can deduct all the interest paid on mortgages written for up to $1 million. The panel is considering whether that cap might be reduced to the size of the biggest mortgage currently insured by the Federal Housing Administration. Nowadays, that means a mortgage of about $313,000 in expensive communities, or a national average of $244,000.While this may sound like a fine idea in much of flyover country where $200,000 will buy you a mansion, in Southern California this could be a disaster. People who do not have the ability to put hundreds of thousands of dollars down would have to take mortgages that would easily exceed the proposed cap, and any interest on the amount above the cap could not be deducted. The net effect would be downward pressure on housing prices, a slowdown in the market, and a real problem for someone who might have been relying on their equity for retirement or other purposes. Bottom line - it would make home purchases much more expensive and less attractive for many people.
Homeownership is something the government should be promoting, not discouraging. Communities with a large percentage of homeowners (as opposed to renters) are always more stable, and homeowners have a vested interest in taking care of their properties.
I've got to believe that there are plenty of other things in the tax code that could be eliminated before they crush the West Coast housing market.
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