Federal Debt Ceiling and Mortgage Interest Deduction

The debt ceiling agreement signed into law on August 2, 2011 has no direct impact on real estate tax rules or spending provisions. No tax laws of any kind were changed, nor were any housing programs cut. The debt ceiling passed the House and Senate on strong bipartisan votes: 269-161 in the House and 74-26 in the Senate. Therefore, a default has been averted – for now.

The legislation provides very broad dollar targets for overall spending reductions over ten years, through 2021. The broad categories of reduced spending are defense, and some so-called “discretionary” domestic spending. Beyond the target dollar amounts, no specifics are provided. Thus, the various committees of jurisdiction will determine what particular programs will be cut and by what amounts. The agreement therefore has no direct effect on authorizations or appropriations related to any particular program.

Even though the package has no revenue provisions and makes no changes to MID, carried interest or any other tax/revenue rule, we are not out of the woods yet. In fact, new authority was created that would make it easier for Congress to make tax law changes.

What to Watch For – The Super Committee

The new legislation creates a “Super Committee,” to be comprised of twelve members (six from the House and six from the Senate). The two parties will have equal representation, so the group will have six Republicans and six Democrats. The respective leaders of each body will appoint the members.

The Super Committee (formally identified as the Joint Select Committee on Deficit Reduction) is directed to identify up to $1.5 trillion in additional deficit reductions over ten years. These may be either spending cuts or revenue increases. Failure to achieve agreement on the $1.5 trillion target means that automatic spending cuts will be triggered. The Committee is prescribed a very aggressive time line for these cuts, and there are significant penalties for failing to meet the targets.

Bottom Line

The next one-hundred days could be the most important part of the battle over Mortgage Interest Deduction and Carried Interest. NAR will be actively engaged in lobbying Congress and will be reaching out to state and local associations, as well as REALTOR® members directly to engage their Members of Congress on the importance of preserving real estate tax provisions.