About Real Estate: Experts split on whether debt-ceiling deal will impact home tax deduction

Some worry that the new debt-ceiling and deficit-reduction legislation approved by President Barack Obama puts the popular mortgage-interest deduction in jeopardy, but others aren’t so sure.

Q. I heard a congressman on the radio a few days ago saying that the deficit-reduction deal that President Obama signed last month might mean that the federal government’s deduction for home-mortgage interest will be reduced or eliminated so the feds can raise more tax revenue. Do you think this is true? This would be a (financial) disaster for me, because the money I save by claiming the interest-deduction each year is the only thing that helps me make my monthly housing payments affordable!

A. Realty experts disagree on how the complex debt-ceiling and deficit-reduction package that was signed into law in August will impact homeowners and the rest of the housing market.

Some economists and most real estate trade groups warn that the roughly $2.4 trillion that must be trimmed from the total deficit in the next 10 years almost certainly will put the sacrosanct deductions for mortgage interest and other ownership expenses at risk. Lawmakers who have hinted they would support a reduction or even elimination of the write-offs note that the interest deduction alone already costs the Treasury more than $100 billion a year in lost income: Merely scaling them back would put a big dent in the deficit, they say, and ease the need to make even more painful cuts that are expected to take place in a variety of popular social programs.

The powerful National Association of Realtors, which has successfully fought Congressional efforts to trim the deductions in the past, is so concerned that the write-offs are now in such “serious jeopardy” that it recently sent an urgent message to all of its 1.1 million members asking them to personally contact their elected representatives in order to encourage the lawmakers to preserve all current realty tax benefits. But lobbyists at the trade group admit that staving off cutbacks in the next several months will be more difficult than ever, in part because the new debt-ceiling pact mandates automatic cuts to several spending programs if Congress and the president can’t come up with a compromise to reach the deficit-reduction targets.

Other experts disagree. They point to several studies that suggest any cutbacks in realty write-offs — especially if they’re made overnight, rather than gradually phased in — could send home prices spiraling down another 10 percent to 20 percent. Few elected officials would want to risk such a drastic decline when housing markets in many areas finally are starting to stabilize.

Optimists who believe realty deductions will be safe for the foreseeable future also note that multiple surveys show that more than 80 percent of Americans, including most renters, favor keeping the current mortgage-interest deduction intact. With 2012 an election year, they say, it’s doubtful that few of those running for office would be willing to alienate such a large portion of voters by agreeing to tinker with such a popular tax break.

We’ll know more about the future of the write-offs by Nov. 23, the deadline to submit a combination of proposed spending cuts and revenue increases aimed at reaching the deficit-reduction targets mandated by the bill Obama signed last month. I’ll keep readers abreast of any new developments.

Q. What is the tallest building in the United States?

A. It’s Chicago’s Willis Tower, formerly called Sears Tower, which was completed in 1973. It rises 1,450 feet — nearly one-third of a mile — with 110 stories and more than 3.5 million square feet of office and retail space.

Q. We are fortunate enough to have a lot of equity in our home, and now we’d like to borrow about $20,000 to remodel. We could refinance and pull the cash out to do the work, but we refinanced earlier this year at a really low rate and don’t want to spend all the upfront expenses to do it again. If we instead got a small second mortgage from my credit union to pay for the job, could the bank that holds the first mortgage demand that we immediately pay the first loan off in a lump sum?

A. Probably not. Unless the documents for the first mortgage loan that you took out earlier this year specifically state otherwise, the lender who issued the loan cannot insist that you immediately pay the debt in full simply because you later take out a second.

Play it safe, though. Review the paperwork you signed when you refinanced several months ago, and then call the bank’s customer-service department to ensure you won’t be penalized if you add a second mortgage through your credit union.

Ÿ For the booklets “Straight Talk About Living Trusts” and “Refinancing the Right Way,” send $4 for each and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 2960, Culver City, CA 90231-2960.

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