Elimination of mortgage interest deduction remains hot topic

A proposal to eliminate the mortgage interest tax deduction will not be passed along to Congress, after the budget plan, which the Mortgage Bankers Association says would be a major blow to the Houston real estate market and the economy as a whole, failed to get enough votes.

However, the idea continues to be tossed around by some lawmakers. Currently, homeowners who itemize their tax deductions can deduct the interest they pay on mortgages on their first or second homes for up to $1 million. The proposal would cap its size at $500,000 and exclude home equity loans and second homes.

"A rollback of the mortgage interest deduction as proposed by the commission would have a devastating impact on both present and future homeowners in this country," said Michael D. Berman, chairman of the Mortgage Bankers Association. "It would immediately stop in its tracks any stabilization we are seeing in the housing market and would effectively increase the cost of homeownership."

The tax deduction currently costs the government roughly $131 billion per year. The proposal received 11 out of 18 votes, with 14 needed to send it to Congress.

The National Association of Realtors also spoke out against the proposal. The group says that the majority of Americans feel that the deduction is important, and its removal would drop home prices by 15 percent.