Mortgage interest deduction will be capped, and that’s (probably) a good thing -- Yahoo! HomesDec 06, 2012 10:14 EST
COMMENTARY | There is a fair share of hyperbole and panic behind all the discussion about the fiscal cliff, whether it is real or just another made-for-TV drama a step away from a new "Real Housewives" spin-off. But that does not mean some of it is not justified.
The fiscal cliff contains many, many moving parts, which sometimes tend to get lost in a sea of white noise. But behind all the political grandstanding and theatrics, there are real Main Street issues at play.
Here is the reality. Regardless of what happens with the fiscal cliff negotiations, the real estate market is going to take a hit, particularly at the higher end of the market. It is just a matter of how substantial; whether it is a bump in the road or a major setback.
When it is all said and done, there will be some sort of tinkering or tweaking of the mortgage interest deduction that has become the vanguard of the real estate industry.
If in fact the deduction is eliminated, and taxpayers are unable to deduct their mortgage interest at all, as they are now for up to a million dollars of principal, the impact will be substantial on the real estate industrial complex, and it will place a drag on the gross domestic product.
That complex of course includes Realtors, lenders, developers, contractors, real estate attorneys, surveyors, plumbers, gardeners, and anyone else remotely involved, even people who sell furniture; and of course we can't forget the banks who make the loans!
But on the other hand if the government pretends like we are still living in 2008 and allows the mortgage deduction to continue as is, the government is going to continue to borrow and print money, and sooner or later it will run out of money.
Then you will have tremendous inflation and that means no one will be able to afford a home,
because interest rates will be too high.
I am confident the deduction will survive in some capacity, because both the president and the GOP are at the very least talking about continuing the deduction in some form. I am not going to pretend to be a tax technician, but policy-wise lowering the cap, either by lowering the cap to $500,000 or perhaps limiting the total amount of all deductions you can take, does make sense, particularly for higher income taxpayers.
In his famous exchange with Joe the Plumber, President Obama talked about spreading the wealth. Well now he's got to spread the pain and lower the cap. But Obama can do it in a way that will keep most of the pain off the middle class.
D.C. can touch the deduction in ways that won't impact most middle class Americans making under $250,000. In fact they won't even realize it.
If we're all in this together, if we all contribute a little bit, we can keep interest rates low, and we can keep the economy humming at a sustainable level.
Will it ever hum again as it did before the bubble burst, when people like my barber were buying and flipping homes? No. But that was a pipe dream to begin with, and a return to that kind of speculative market will set us all back, not forward.
Real estate attorney Roy Oppenheim left Wall Street for Main Street, founding Oppenheim Law along with his wife in 1989 in Fort Lauderdale, Florida, and is vice president of Weston Title. He is also creator of the South Florida Law Blog, named the best business and technology blog of 2011 by the South Florida Sun-Sentinel.