Love's Real Stories

Things are pretty tight for Uncle Sam these days. The pockets of his threadbare striped suit aren’t jingling, and he’s looking around for places to pick up some spare change. Look out, homeowner, he’s been eyeballing your MID, and he just might be reaching his long bony fingers in your direction ASAP.

Your MID? It’s your Mortgage Interest Deduction, known as the granddaddy of all homeownership tax incentives. Since 1913, Uncle Sam has allowed you the privilege of deducting the interest portion of your monthly mortgage payment from your taxable income. But now Uncle Sam’s Deficit Reduction Committee is recommending an MID grab. What Uncle giveth, Uncle may take away.

The MID is seen by many as a major incentive for homeownership and one of the cornerstones of the American Dream. The prospect of seeing the MID eliminated is causing the Dreamers some restless sleep and crankiness.

The National Association of Realtors (NAR) says “Housing is the engine that drives the economy, and to even mention reducing the tax benefits of homeownership could endanger property values. Home prices could decline as much as 15 percent.”

NAR says the proposal by the Deficit Reduction Committee will hit the housing market with a low blow and knock out opportunities for homeownership across the nation.

The California Association of Realtors (CAR) says “Few issues are more important to homeownership than the Mortgage Interest Deduction. As the housing market continues to recover from the worst financial crisis in recent history, any change that reduces the ability of the market to heal is misguided and must be rejected.”

It’s not just the businesspeople who don’t like the idea of losing the MID. Seventy five percent of homeowners and over fifty percent of renters said the MID was “extremely” or “very important” to them, in a survey commissioned by NAR.

What’s so great about the MID? Well, the MID effectively reduces the amount you pay for your home. Your home loan, unlike credit cards and student loans, is tied to an amortization schedule which allocates part of your payment to interest and part to the principal. In the early years of your mortgage the majority of your payment goes to pay interest. So in the first few years almost the whole monthly payment is tax deductible.

The MID allows homeowners to take the funds they would have paid in income taxes, and use them instead to make their loan payments. It’s one of the reasons it makes more sense to own a home than to rent one. Smug homeowners have been known to remark that renters work from January to April just to pay their taxes.

In the realm of tax incentives, the MID is one of the great wonders of the world. After all these years, will Uncle Sam in his quest to find some jingle, just reach out and snatch back the MID? Not without a fight.

CAR and NAR together declare, “We will remain vigilant in opposing any plan that excludes the deductibility of mortgage interest and make certain that the Real Estate industry’s opposition to this proposal is heard and its far-reaching implications understood.”

Hear it and understand it homeowners and would-be homeowners, it’s your MID life-crisis.