Tax Break Cap and Florida Foreclosures

by Donald Hanz on States

The Obama Administration’s tax break proposal has caused quite a stir among homeowners who have gross income not less than $250,000.

Under the tax deduction proposals for property and mortgage interest, wealthy homeowners could avail of a tax break until 28 percent of the marginal rate in the tax bracket. Most wealthy homeowners are concerned that the tax break cap would cause housing prices to drop and may not bode well for efforts to control Florida foreclosures.

For example, a homeowner who belongs in the 35 percent tax bracket rate and has nearly $20,000 of property tax, mortgage interest and charitable deductions is a prime target of the Obama proposal.
For a homeowner belonging at the 28 percent rate, he could receive a tax break of $5,600. His tax due would increase by $1,400. Homeowners do not consider this proposal as a positive way to prevent Florida foreclosures.

Experts agree that the tax break plays a role in controlling the rapid spread of Florida foreclosures.
The Obama Administration proposed to cap the tax break for wealthy people in order to generate tax revenue to allow the U.S. government to spend the money on other projects, such as health care. The annual cost of property and mortgage interest write-offs has been depleting the Treasury’s coffer.

Meanwhile, the Joint Committee on Taxation predicted that this year, the mortgage interest rate tax break would cost the U.S. government unpaid taxes for about $89.4 billion.
According to the joint committee, the mortgage interest write-off will cost the department about $433.6 billion from 2008 to 2012. Furthermore, a property tax deduction has an additional cost of $112 billion for the same period.

The property and mortgage interest tax break is opposed by realty brokerage, banking industry officers and home building. They believed that the proposal could lower home values, adding that the timing of the measure is not right considering the growing Florida foreclosures and the vulnerability of the real estate and foreclosure market nationwide.

Mortgage Bankers Association President John Courson explained that homebuyers will begin incorporating the reduced tax benefits and discounting the amount they would pay for property because of lower future tax deductions.

National Association of Realtors Chief Economist Lawrence Yun pointed out that the tax break cap would have a devaluation ripple effect that will extend to low and middle-income strata and eventually worsen Florida foreclosures.