U.S. Congressman Tom Reynolds (D-NY) has introduced legislation to remove an inequity in the tax code that penalized seniors and middle income homeowners from taking a deduction on their tax returns for any mortgage interest they had accumulated in the purchase or refinancing of their primary residence.
Reynolds' legislation - the Homeowner Refinance Fairness Act of 2002 - was introduced in the Congress September 5 and was referred to the Committee on Ways and Means. The legislation was suggested by Bellmarc Companies principal Neil Binder, who says that the bill is likely to be included as an amendment in President George W. Bush's tax reform package.
The proposed legislation will amend the Internal Revenue Code of 1986 under Section 163(h)(3)(B)(i) to repeal the provision that limited the interest deduction on refinanced home mortgage indebtedness to the amount of indebtedness being refinanced. In most instances, a homeowner may deduct interest relating only to the amount of the mortgage being replaced, plus another $100,000 relating to an equity credit line, according to Binder.
Anyone who owns a home should be entitled to this deduction, says Binder, and the current tax code doesn't distinguish between new financing and refinancing. The homeowner should be able to obtain whatever interest they originally gained from a home purchase without penalty, says Binder. "Under this new legislation they'd be able to get the same amount, except if it was a new acquisition. They could get up to a $1 million one-hundred thousand under any circumstances, regardless of whether it was a new purchase. Basically, they wouldn't get penalized for it."
The bill gives all taxpayers the right to take a deduction on their tax returns for any mortgage interest associated with a primary residence or qualifying vacation home, regardless of whether the mortgage is for an initial purchase or due to refinancing, Binder says.