First things first: The current tax breaks for your house aren't going away anytime soon.
There's too much entrenched opposition to the proposals made Nov. 1 by the presidential advisory panel on tax reform.
Key provisions of the plan would:
Limit tax breaks to mortgage loans on primary homes.
Replace the mortgage-interest deduction with a tax credit equal to 15 percent of the interest paid.
Cap the amount of the loan eligible for that credit. The cap would be set locally, depending on prevailing prices. The proposed range is $227,000 to $412,000, with the District and nearby jurisdictions at the high end.
Phase in the caps over a five-year period.
Eliminate the deduction for state and local taxes.
Currently, taxpayers can deduct interest paid on mortgage loans up to $1 million for first and second homes, plus home equity loans of up to $100,000. They can also deduct their property taxes.
Those deductions, part of the original 1913 tax code, are a long-cherished benefit of homeownership, which is why the proposal might be as doomed as similar proposals have been for decades. The new plan drew immediate outrage from the housing industry, with claims that if it were implemented, home values would immediately drop 15 percent, and consumer confidence would fall.
Others disagreed, saying prices might fall about 8 percent for higher-cost homes, which would take the biggest hit under the proposal; but demand would shift to less-expensive houses. That could set off a kind of ripple effect, in which lower-income people would be able to buy houses, whose sellers would, in turn, move up to more expensive properties. Advocates also contend that the proposal would spread wealth to those most in need, in contrast to the current code, which they say encourages the building of McMansions and second homes rather than entry-level housing.
In essence, the proposed changes would mean that homeowners would get no more than a 15 percent tax benefit from their mortgage no matter what their tax bracket.
