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Do homeowners with AGI income over $200,000 need the interest tax deduction? Since the beginning of this year, the government has been kicking around the idea of eliminating the interest tax deduction for homeowners with aggregate gross income over $200,000. They think the wealthy are the only ones that will be affected. WRONG! On February 1st, 2010 President Obama released his budget proposal, in it he proposed this: The plan changes the Mortgage Interest Deduction by reducing the amount of mortgage deductibility on families earning over $250,000 (AGI), and on single tax payers earning over $200,000 (AGI). This proposed change in the Mortgage Interest Deduction will result in further erosion of home prices and home values. Consider this, a family with 2 children; earning 250,000 annually could easily pay a tax of 30 to 40%. If the tax were 40% that leaves roughly $150,000 of income. If you calculate college for both kids, then add the falling values of everything from stocks, bonds, to real estate; the average family in this bracket has already taken a big hit. Let alone, credit card debt, home equity lines of credit and high real estate taxes. Take away the interest deduction and the house of cards begins to crumble even more than. Consider we are in the worst housing meltdown in many decades. In our opinion, losing these deductions will crater the rest of the real estate industry. There are many homes in this country that were worth $750,000 or more. Most of these homeowners are close to or over the adjusted gross income of 200,000. If the tax deduction were eliminated, we will see a new round of foreclosures in the higher end market, which is already devastated. Although we doubt that the federal government will eliminate the interest deduction, just the discussion of it, is enough to help burden an already hazardous market. What can the government do to help the real estate industry? It"s pretty simple, don"t interfere. Yes, the banks got wild there for a while. Yes, we consumers got a little wild. But enough is enough, the correction is occurring, whether we like it or not. Truth is, the way prices were going, no one could afford to purchase a home, if this had continued for several years, we would have been priced out of the market, unless you had purchased several years before. So a correction isn"t all bad, its where its heading that is of concern, the free fall continues, in our opinion the 2nd quarter of 2011 will be the very bottom. The housing market has some small signs of strength in the 250,000 and under price; however, homes that sell for $500,000 and above are having a difficult time. Homes over 1 million are barely selling, other than foreclosures and short sales. To attack that market with more burdens is a bad idea. New Economy Realty offers critical resources and information to prosper and survive in this new economy. Find us at: www.neweconomyrealty.com
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