Target: Middle Class

Let’s say you own a business and one of your employees comes in one day, takes thousands of dollars of your company’s money, and distributes it to someone else. How would you feel? Not too happy, right? Now, let’s say this employee does this every year you own your business. Let’s pick a random date he or she would do this every year. How about…April 15th!

Sound far-fetched? Well, it isn’t! In this case, the "employee" is a Presidential nine-member, bipartisan tax-reform panel responsible for delivering recommendations to lawmakers to overhaul the tax system. This panel has proposed changes that do just that. Yes, folks, the mortgage interest deduction ("MID" for short) is under assault again.

To be honest, in areas where the housing costs are considerably lower, it might not be a big deal. But in the higher cost areas—like my home state of California—it could be a really, really, really big deal. It is those proposed changes that could make the difference between being a homeowner or a renter.

The MID is a major financial benefit of owning a home. It can lower the actual cost of homeownership. Without it, many could not afford a home at all. In fact, in California the housing affordability index—the amount of folks who can afford a home—is at an all time low of 14%. Yes, that means if everyone wanted to buy a home today, 86% could not do it. What would happen to that number if the MID was drastically reduced?

Here are some of the proposed changes the nine-member panel recently delivered to the Treasury Department:

Reducing the amount of the mortgage loan on which homeowners get a tax break for the interest paid. The suggested amount could be between $227,000 and $412,000. In California, the median home price is currently at $454,000. That could mean most homeowners in the state would be adversely affected by the changes.

The mortgage interest deduction would be converted to a tax credit of 15% of the interest paid up to the mortgage interest cap. That could be a difference of thousands of dollars.

The deduction for interest on home equity loans could be eliminated. Refinance could become a four-letter word rather quickly!

The deduction for interest on second homes could be eliminated. This could remove a big incentive to make that second home purchase and reduce another member from the home buying market.

The time period is lengthened that a taxpayer must own a principle residence before any gains from selling are tax-free.

And don’t think it would only affect homebuyers. It could also affect home sellers. Selling your home would be more difficult without the MID to ease the financial cost of buying a home. Not to mention what it would cost you for the move-up home you thought you could afford.

And here's another interesting tidbit: A phase-in process has been discussed, so it could gradually affect a current homeowner's pocket within a handful of years.

Of course, the devil is always in the details, but so far the broad strokes on the canvas don’t look too appealing. But what can you—the average person—do to stop this ball from rolling over your family’s financial future?

Easy! If you don’t like what is being proposed, then do exactly what you would do to that employee: tell them "NO!" Write your congressman and share your dissatisfaction with the proposed changes. Voicing your opinion to those who govern is one of the great benefits of living in this country. After all, they work for us and we need to let them hear from us from time to time. And if they don’t take "NO" for an answer, then fire them!

Of course, it may not matter to you whether the MID is reduced or even eliminated. In that case, just do nothing.