Here's a look at the laws that could wage a multipronged attack on your wallet and what you can do to prepare.
The impending fiscal cliff is causing lawmakers to consider many tough decisions and make every kind of consideration for getting the government back on budget. That has led to the proposed slashing of a popular tax break that helps homeowners save thousands every year.
The tax deduction that allows homeowners to write off the cost of their interest payments into their mortgages is now officially facing the chopping block as Democrats and Republicans work to sort out the nation’s finances ahead of the fiscal cliff on Dec. 31, according to a report from Reuters. The tax cut costs the federal government about $100 billion a year, and is one of the largest being considered for elimination. Getting rid of it would reduce the nation’s $1 trillion deficit by 10 percent, by itself.
“The mortgage interest deduction used to be a sacred cow that you couldn’t touch; that’s just not the case anymore,” said Jaret Seiberg, senior policy analyst at Guggenheim Securities. “For the first time, it’s truly vulnerable. The difference now is that it is on the list of options that both liberals and conservatives are willing to consider.”
Its size is the reason it was once considered an untouchable tax break, the report said. The amount it saves homeowners every year is massive, and if that were to go away, it means thousands of dollars per family in additional costs every year. In all, about 35 million people are eligible for the deduction, which has been in the tax code, intact, for 26 years. Experts also say there are numerous loopholes in the deduction that allow it to be exploited.
Further, it’s also worth noting that even if the deduction doesn’t get axed as part of the fiscal cliff negotiations, it’s still on very uncertain ground, the report said. If lawmakers decide to overhaul the nation’s entire tax code next year -- which is believed to be a possibility -- the homeowner break could once again be up for consideration.
Of course, it’s possible that not having the tax break could also endanger the housing recovery, as consumers might be less tempted to enter into homeownership because of the thousands of dollars in added costs they would have to take on to own a property over the course of many years.
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