President Obama’s 2012 budget proposes an across-the-board 30% cut to itemized deductions for high-income taxpayers. This includes the mortgage interest tax deduction.
Currently, interest on a mortgage taken out to buy or improve a home can be fully deducted if the amount of the loan is less than $1 million for married couples and $500,000 for singles. Home equity loans taken out for anything else is limited to $100,000 for couples and $50,000 for singles.
In December, a commission appointed by President Obama to reform the tax code and reduce the nearly $14 trillion in U.S. deficit submitted a proposal to lower the cap on the mortgage interest tax deduction for purchase loans from $1 million to $500,000.
Obama’s budget did not specifically name the mortgage interest tax deduction. But he does propose cuts “across-the-board.” These cuts will pay for a three-year fix to the alternative minimum tax (AMT), which the president said in his budget has driven the country deeper into deficit year after year in order to prevent this tax from hurting too many middle-class families.
A spokesperson for the office of management and budget said the proposal caps the value of itemized deductions at the 28% tax bracket.
“For too long, we have tolerated a tax system that’s a complex, inefficient and loophole-riddled mess,” Obama said in the budget.
The National Association of Realtors, the biggest advocate for the mortgage interest tax deduction, voiced concerns when the commission first brought up the proposal in December.
“The tax deductibility of interest paid on mortgages is a powerful incentive for homeownership and has been one of the simplest provisions in the federal tax code for more than 80 years,” said NAR President Ron Phipps at the time.