The National Commission on Fiscal Responsibility and Reform published its final report and suggests rolling back the mortgage interest deduction as a way to lower the deficit.

The commission recommends scaling back the current rule which caps the mortgage deduction at $1 million for principal and second residences, plus an additional $100,000 for home equity.  The new proposal would make a 12% non-refundable tax credit available to all taxpayers and cap it at $500,000.  No credit for interest from a borrowers second residence or home equity line of credit would be allowed.

As expected, the two of the largest trade associations representing the mortgage and real estate industry oppose the proposal.

“A rollback of the mortgage interest deduction as proposed by the commission would have a devastating impact on both present and future homeowners in this country,” said Michael D. Berman, CMB, Chairman of the Mortgage Bankers Association. “It would immediately stop in its tracks any stabilization we are seeing in the housing market and would effectively increase the cost of homeownership for millions upon millions of people.”

The National Association of Relators said it would remain vigilant in opposing any plan that modifies or excludes the deductibility of mortgage interest.

“NAR firmly believes that the mortgage interest deduction (MID) is vital to the stability of the American housing market and economy,” said Ron Phipps, President of the National Association of Realtors.  “The tax deductibility of interest paid on mortgages is a powerful incentive for home ownership and has been one of the simplest provisions in the federal tax code for more than 80 years.”

According to NAR, a survey conducted in October by Harris Interactive found that of nearly 3,000 homeowners and renters, nearly three-fourths of homeowners and two-thirds of renters said the mortgage interest deduction was extremely or very important to them.