Late 2007, early 2008: Financial markets freeze up, the economy goes into a tailspin, over 100,000 homes are foreclosed on in Minnesota and the economy slowly begins limping back to recovery. We all know the story and have seen, or lived, the tragic consequences of the housing downturn.
Looking back and pointing fingers is easy, but as we begin to grow out of the crisis, our state legislators must continue to support sensible policies that protect middle-class Minnesotans. One of those policies is the state mortgage interest deduction. By allowing homeowners to deduct the interest paid on a mortgage, the state mortgage interest deduction provides many homeowners a significant savings at tax time.
The deduction is a remarkably effective tool that facilitates homeownership, the foundation of a healthy middle class and a growing economy. All legislators, regardless of party, should be in favor of policies — like the state mortgage interest deduction — that build wealth for families and allow them to gain a foothold into the middle class.
According to the American Community Survey in 2012, Minnesota had 1,036,410 homes with mortgages on them. The Minnesota House Research Department and Department of Revenue have data showing that 734,000 filers in 2011 received the benefit of the mortgage interest deduction. That means 70 percent of Minnesota’s homeowners with a mortgage itemized and used the mortgage interest deduction. By putting money back in the pockets of Minnesotans, the mortgage interest deduction builds wealth — allowing households to pay down debts, save for their children’s college education, or put money away for retirement.
It’s important to note that many of the 30 percent of homeowners not using the mortgage interest deduction used it while raising their families. These homeowners have seen, and lived, the positive benefits of the state mortgage interest deduction, and they expect this established portion of Minnesota’s tax code to be there when their children look to buy their piece of the American Dream.
An essential role
Furthermore, homeownership tax incentives and savings plans play an essential role in our housing market and markets all across the world, including Canada and Western Europe. Also, many real-estate investment decisions have been made with current Minnesota deductions factored in. To change these established portions of the Minnesota tax code would be changing the rules in the middle of the game, resulting in an unexpected loss of wealth as homeowners would lose out on potential savings each year. Now, more than ever, middle-class Minnesotan homeowners need assurance that promises made to them are kept.
It’s important to note this is a tax deduction for middle-class families, not corporations or banks. It’s one of the few remaining tax incentives dedicated to helping homeowners and families across Minnesota. Purchasing a home remains the mark of middle-class arrival and financial security for millions of Minnesota families. Buying a home for most Minnesotans is a crucial part of achieving the American Dream. The state mortgage interest deduction plays an instrumental role in helping families all across Minnesota realize that dream.
Curtailing the state mortgage interest deduction would be a step backward for Minnesota families, and any changes to the state mortgage interest deduction would have serious consequences on homeownership levels, home values and the recovering economy in Minnesota. There would be less incentive for first-time homebuyers, whose early payments typically consist mostly of interest, to buy — or for “move-up” buyers to enter the market. Working and middle-class families would see a reduction in home values.
Lawmakers discuss potential changes
Discussions in St. Paul have included significant changes to the state mortgage interest deduction. Some Minnesota politicians have proposed eliminating the state deduction altogether. Unfortunately, these discussions overlook the positive effects the state deduction has had on homeownership in Minnesota.
Nearly eight years after the financial crisis and the economic downturn that followed, Minnesota homeowners are finally breathing a little easier. Let’s keep it that way.
Barb Davis is a Realtor at Coldwell Banker Burnet in Minneapolis.
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