It’s not news that the real estate industry has struggled for the past few years. There are hints at a potential recovery as economic indicators point to our bouncing at the bottom, but could something as simple as killing mortgage deductions wipe out the real estate sector?

While sales and prices struggle along, there are a few things holding the real estate world together, most of them tied directly to politics. Rumors of cutting the mortgage deduction roamed the halls of Congress, the internet and news rooms but wasn’t validated until the deficit reduction plan was released today. The plan includes taking a giant machete to mortgage interest deduction for homeowners.

As with all lame duck Congressional sessions, the following weeks will be spent wearily mulling over issues halfheartedly, including major issues du jour like healthcare and the tax code. Critics and supporters are very vocal on the issue of mortgage interest deductions remaining in tact, and why not? How many tax credits can you count that nearly all middle-income earners can count on? That’s right, pretty much only two- mortgage interest deduction and child tax credits.

When everything looked good economically, most people wouldn’t have batted an eye at doing their part by sacrificing tax credits, but when employment is walking on broken ankles without crutches and the home prices and sales are huffing and puffing like Ralphie May taking a break from a marathon, killing mortgage deductions could be the straw that breaks the real estate camel’s back.

Who wins- the rich or the middle class?

“It’s been in the tax code for almost 100 years and it should stay there. Now is not the time to tamper with this,” said the National Association of Realtors’ managing director, Lucien Salvant.

This isn’t a tax deduction that rewards the rich, it’s currently capped at a million bucks anyhow. One of the considerations right now is moving the cap down to $500k. I will acknowledge that the flip side of the argument is that subsidies promote borrowers taking on more debt, but that’s ludicrous in my opinion and here’s why…

I’m going to get a check from Uncle Sam this year because I replaced a few appliances. I didn’t go out and buy new Energy Star appliances because there was a check from Uncle Sam involved, I bought them because the old ones were pieces of crap, but hey, thanks for the check, America. This isn’t how it should work.

The bottom line is that it is my belief that killing mortgage interest deductions is a back door tax and you can hire a sexy PR team to gussy it up and call it whatever you want, but at the end of the day, it’s money out of peoples’ pockets that are barely hanging on right now.

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