The National Association of Realtors is speaking out against the possible elimination of the mortgage interest tax deduction by Congress, and speaking loudly.

Where the group once saw an ally, it is now leery of the Republican-led Congress. In November, housing lobbyists cheered the possibility of cuts in the capital gains tax, which they thought could result in more real estate investments.

Talk in Congress has now turned to eliminating the mortgage interest deduction to recover lost revenue if the capital gains tax is reduced. With the spring buying season right around the corner and Congress passing new legislation in record time, the housing industry is focusing on the threat to the interest deduction.

One proposal, Sen. Bob Packwood, the Oregon Republican who heads the Finance Committee, would eliminate interest deductions on home loans exceeding $250,000. Another, by House majority leader Rep. Richard Armey, R-Tex., calls for a flat income tax with no itemized deductions, including the mortgage interest deduction.

"The 750,000 (National Association of Realtors) members will be galvanized over this issue," Edmund G. Woods, NAR president, said Wednesday. "Packwood will be aware of this in the future." Mr. Woods said the association is opposed to both Sen. Packwood's and Rep. Armey's proposals, but is currently focusing more on Sen. Packwood's proposition.

One could make a case for Rep. Armey's bill calling for a 17% flat tax, Mr. Woods said, if taxpayers could be assured the rate would not increase in the near future. Otherwise, he said, they would give up the deduction for a lower tax rate which they might eventually lose.

"What these ill-conceived ideas really amount to is a substantial tax increase for our nation's homeowners," Mr. Woods said. "The ability to deduct mortgage interest is one of the few remaining incentives provided by the federal government to promote homeownership growth in the U.S."

NAR is sending a letter with other housing organizations to members of Congress, emphasizing the need to preserve the mortgage interest deduction.

Mr. Woods said the elimination of mortgage interest deductions would cause a decline in home values, resulting in stagnant sales and slow housing construction, affecting more than just realtors.

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