December 21, 2010
Donna Shirey

NAHB Remodelers Chair
Issaquah, Wash. 
Tax Reform News
NAHB Fires Back at Deficit Commissionís Call to Slash Home Equity Loan Deduction

Released on Dec. 1, the final report of President Obama's bipartisan National Commission on Fiscal Responsibility and Reform includes disturbing recommendations that would curtail or eliminate essential housing incentives such as the home equity loan interest deduction and the mortgage interest deduction (MID). An elimination of this tax deduction could greatly reduce home remodeling activity because this is the primary resource home owners use to access money for remodeling.

As NAHB had anticipated, the final report of the bipartisan commission recommends significant alterations to the mortgage interest deduction as part of an overall plan to cut the federal budget deficit. Proposed options include eliminating the MID, changing it to a 12% non-refundable tax credit, setting a $500,000 cap for eligible mortgages and limiting its application to primary residences. 

Prepared for the bad news, NAHB immediately rolled out a new consumer-oriented website that will be a critical tool in the association’s fight to preserve the MID as a cornerstone of American housing policy —

Other commission recommendations would eliminate the Low Income Housing Tax Credit (LIHTC), the deduction for real estate taxes for home owners, accelerated depreciation for rental housing, energy tax incentives, tax-exempt housing bonds and the capital gains exclusion on the sale of a principal residence. In addition, the proposals would result in significantly higher tax rates for capital gains and dividends. 

Highly controversial proposals unrelated to housing appear in the report, including a recommended increase in the Social Security retirement age to 68 by 2050.

As a result, commission co-chairs Alan Simpson and Erskine Bowles were only able to muster the support of 11 of the 18 commission members, which fell short of the 14 votes required to issue a formal recommendation to Congress and the White House. While even a formal recommendation would not be binding in terms of what, if any, action Congress would need to take, the proposal itself can be expected to form the foundation for discussions next year about ways to bring down the national debt. 

Remodeling Tax Issues

Tax reform may also remove the home equity loan interest deduction unless Congress carves out an exemption for home improvement.

The commission’s report suggested removing this tax deduction, which is used regularly by home owners for big expenses. About 50% of home equity loans are used for remodeling purposes.

An elimination of this tax deduction could greatly reduce home remodeling activity because this is the primary resource home owners use to access money for remodeling. The United States has about $1 trillion of outstanding home equity loan debt and half of that was used to finance remodeling during recent years.

Another area of concern for remodelers is a proposal to eliminate all energy efficiency tax credits (such as the 25C and 25D). These credits have been used for energy efficiency remodeling upgrades, such as installing windows, doors, insulation, and renewable energy products.

Last week's new tax law extended the 25C tax credit through 2011 but with fundamental changes, including reducing the rate from 30% to 10% and placing a $500 lifetime cap on the program. These changes considerably weaken the program rendering it very hard to use for consumers and remodelers in 2011 (see the next story for more details).

NAHB Response

"While we commend the hard work of the President's deficit commission to improve the nation's fiscal situation, this is simply the wrong approach to the problem,” NAHB Chairman Bob Jones said in response to the report.

“It would put a huge tax increase on millions of middle-class home owners by eliminating or devaluing the mortgage interest deduction,” he said. “The consequences would be devastating for housing and the economy. Eliminating or scaling back this vital housing deduction will shrink the local tax base of many communities, causing already cash-strapped state and local governments to further cut jobs and essential services. Given the extreme fragility of the housing market, with 21% of construction workers currently idled, tampering with the mortgage interest deduction is just not sound public policy."  

Meanwhile, in interviews with the The Wall Street Journal, the Washington Post,, Marketplace Morning Report and the Dallas Morning News, NAHB Chief Lobbyist Joe Stanton explained why tampering with the mortgage interest deduction to help reduce the federal deficit is bad public policy and would further harm a housing market that is already struggling to regain its footing following the worst downturn in decades.

In the Journal report, Stanton said that NAHB would use "the full weight of our grass roots" to prevent any reduction of the mortgage-deduction tax break. "You are already talking about an industry that is completely battered, and this will kill us," he said. is designed to help the association get the word out to consumers about the threat to the mortgage interest deduction, educate policymakers about the MID's importance and scope and facilitate feedback to lawmakers about the importance of preserving this critical homeownership incentive.  

It provides up-to-date information on the threat to the MID, along with fact sheets, frequently asked questions, media stories, statistics and more. Most importantly, tells visitors how to remain engaged and make sure their opinions are heard on this vital issue by connecting with NAHB’s Facebook and Twitter conversations and with its Eye on Housing blog. 

NAHB has also created resources to help members and HBAs learn about the issue, reach out to local media and engage others in the dialog. The resources are available at and include web banners, letters to the editor, backgrounders and more.

These powerful new resources represent weeks of advanced preparation by NAHB and are a key part of the federation’s integrated advocacy strategy to defend housing incentives in the current tax code.

For more information, e-mail J.P. Delmore at NAHB, or call him at 800-368-5242 x8412.

National Association of Home Builders
1201 15th Street, Washington, DC 20005-2800

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