The President’s Advisory Panel on Tax Reform has issued its final report and, as expected, is recommending a major overhaul to tax provisions related to home ownership and home equity.

Specific recommendations are for replacing the general mortgage interest tax deduction with a less-generous "home credit" and for complete elimination of the tax deduction for home equity loans.

The Panel recommends that the deduction for mortgage interest be replaced with a Home Credit available to all homeowners. The Home Credit would be equal to 15 percent of mortgage interest paid by a taxpayer on a loan secured by the taxpayer’s principal residence and used to acquire, construct, or substantially improve that residence. The Panel recommends that the deduction for interest on mortgages on second homes and interest on home-equity loans be eliminated.

Although not specifically addressed in the report, presumably the tax deduction for interest on reverse mortgages would also be eliminated under this recommendation.  Currently, interest on reverse mortgages is deductible when paid - i.e. when the homeowner sells or dies.  While this diminishes the the importance of the deduction, it is still a valuable benefit in many situations. 

There will certainly be widespread debate of the Advisory Panel’s proposals over the next several months.  We will monitor and report developments impacting the reverse mortgage arena.

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