During the arduous and acrimonious debate over the fiscal cliff, one potential part of the solution that has come up often is the elimination of the mortgage interest tax break. And while many lawmakers treat it as a sacred cow, it turns out the majority of consumers don’t take advantage of it.
The average deduction taken as part of this tax break can save consumers more than $12,000 per year in some states, but shockingly few people actually choose to take advantage of the deal, according to new research from USA Today based on data from the Internal Revenue Service. In 2010, only 26 percent of consumers across the country wrote off the interest they paid on their mortgage over the course of the year as part of their taxes, and in many states, that rate is even lower.
In North Dakota and West Virginia, for example, just 15 percent of taxpayers take this deduction – though it’s important to note that not all taxpayers have a mortgage for which they can deduct interest, the report said. Other states in which fewer than 20 percent of consumers claim this tax break include Mississippi (17 percent), Louisiana (18), Arkansas (19) , Florida (19) and South Dakota (16).
By contrast, other states, such as nearly all of New England and the Pacific Northwest, have rates of more than 30 percent of taxpayers claiming this deduction, the report said. However, Maryland, at 37 percent, is tops in the country by a good margin. The next closest is Connecticut at 34 percent.
Nonetheless, proponents of keeping the deduction in place say that the tax break, which is intended to encourage more consumers to take on homeownership by making it more affordable, is vital to the state of the entire housing market, the report said. On the other hand, those who think it's a prime target in the fiscal cliff debates point out that eliminating it could save the federal government $108 billion annually.
"This is going to have an impact on the real estate market, especially as we're just coming out of a recession," Mark Feinroth, a lobbyist for the Maryland Association of Realtors, told the newspaper. "It's a particularly bad time to bloody the nose of the home industry again."
Consumers will have to keep a close eye on the fiscal cliff debates going forward because it will likely impact their finances in several ways in the new year.
Image: Images_of_Money, via Flickr