Why Now’s the Time to Kill the Mortgage Interest Deduction: Lennar Corporation (LEN), Toll Brothers Inc (TOL)

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  • Even in high-priced areas, more people are paying cash for their homes than ever before. In California, nearly a third of all home purchases were done without any mortgage at all. With savings account balances paying next to nothing in interest, paying even 3% to 4% for a mortgage doesn’t make much sense to those who have the financial resources to pay upfront. Moreover, those buyers are helping push home prices higher overall.
  • As much as homebuilders argue that eliminating the deduction would hurt them, economists agree that the biggest impact would be on the highest-priced homes, with more reasonably priced real estate seeing little or no impact from getting rid of the deduction. As a result, Toll Brothers Inc (NYSE:TOL) and other high-end homebuilders might take a hit. But Lennar Corporation (NYSE:LEN) and other homebuilders that tend to provide entry-level homes might not see any impact at all, while PulteGroup, Inc. (NYSE:PHM), which provides a mix of different home types, would fall somewhere in the middle.
  • Moreover, homebuilders have already taken steps to survive the rise in rentals that could result from the loss of mortgage interest deductibility. Beazer Homes USA, Inc. (NYSE:BZH) joined Wall Street’s KKR & Co. L.P. (NYSE:KKR) to create a REIT that buys homes and rents them out, while Lennar and Toll Brothers have made similar purchases through related divisions.
  • Think about it
    It’s never going to be an entirely comfortable time to get rid of mortgage interest as a tax deduction. But with the need for more tax simplicity, looking at ways to eliminate specialized provisions of the tax code is worth a further look. If we’re ever going to move toward tax reform, now’s the best time to look at phasing out and eventually getting rid of the mortgage-interest deduction.

    The article Why Now’s the Time to Kill the Mortgage Interest Deduction originally appeared on Fool.com and is written by Dan Caplinger.

    Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned.

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