This Feb. 8 photo shows a for-sale sign at a home in Yardley, Pa. (Alex Brandon/AP)

Maryland real estate agents have planned a rally at the State House in Annapolis on Wednesday to protest Gov. Martin O’Malley’s proposal to cut the mortgage interest deduction for residents who make more than $100,000.

The proposal is part of the governor’s budget bill that was outlined in January, which seeks to improve the state’s financial condition in part by modifying the amount of deductions that high-earning homeowners can take when filing their taxes. According to the governor's budget proposal, the caps on itemized deductions are projected to bring in an additional $119 million a year.

The governor's fiscal 2013 budget was outlined Jan. 18 and seeks to close a $1 billion budget gap. O’Malley said at the time that the bill would make state investments in jobs and education and help rebuild the state’s infrastructure.

But according to the Maryland Association of Realtors and the Greater Capital Area Association of Realtors, the governor’s budget would reduce the amount of itemized deductions by 10 percent for individuals and couples earning more than $100,000 in gross income. For individuals and families earning more than $200,000, homeowners would see a 20 percent reduction in their itemized deductions.

The Maryland Senate Budget and Taxation Committee holds a hearing Wednesday on the issue, and the House of Delegates Ways and Means Committee takes up the matter Thursday.

The Greater Capital Area Association of Realtors says that mortgage interest and property taxes account for almost 70 percent of total itemized deductions in Maryland, and they argue that the proposal, if passed, would further harm the area’s housing market, which has struggled to recover.

The measure “strikes at the heart of the real estate industry,” said Bonnie Casper, president of GCAAR. “All homeowners have bought their homes with the understanding that at end of each year they could be claiming certain deductions. There are many people who buy homes who say, at the beginning of the year I’m going to be paying ‘X’ amount in mortgage interest, but at the end of the year I get something back. That makes it much more affordable.”

Casper said the measure could also discourage first-time homebuyers. “It’s a game-changer,” she said.

O’Malley spokeswoman Raquel Guillory said the change in deductions is “slight.” In an e-mail, Guillory said 10 states have no itemized deductions for personal income taxes, and five states, as well as the District of Columbia, limit deductions for some tax filers.

Under the plan, she said, eight of 10 Marylanders will see no changes to their tax deductions.

The issue of eliminating or reducing the amount of mortgage interest tax deduction that homeowners have enjoyed for years has also been a debate at the national level, as Congress and the president have looked at options to reduce the federal deficit.

But so far, national real estate lobbying groups have successfully pushed hard against the idea, arguing that the deductions provide a big incentive for homeownership. Moreover, they argue that the timing is bad; the housing market has struggled to recover, even though other sectors of the economy have shown stronger signs of life.

On Tuesday, for example, a key housing index provided by S&P/Case-Shiller showed a surprising dip in home values for fourth-quarter 2011, with the index falling to lows not seen since the housing crisis began in 2006.

In the Washington area, which had remained one of the strongest markets during the housing crisis, the S&P/Case-Shiller home price index fell 1.2 percent in the fourth quarter of 2011 compared to the third quarter.

The home prices index had been rising through most of 2011 but began to dip into negative territory in October. For the full year, the index fell 1.6 percent in Washington.

What do you think of the proposal to alter the mortgage interest tax deductions to help local and federal budgets? Tell us in the comments section.