Key lobby drops demand for U.S. mortgage interest tax deduction

By Ginger Gibson

WASHINGTON (Reuters) - The trade group representing U.S. homebuilders has abandoned its demand that a new version of the tax code include a mortgage interest deduction, signalling on Tuesday that it would consider alternatives to boost home ownership.

The National Association of Home Builders had raised concerns about the Republican plan to overhaul the tax code because it would have effectively done away with the mortgage interest deduction for millions of taxpayers. That tax deduction is viewed as a critical incentive to encourage home buying.

NAHB, whose members include D.R. Horton Inc , Lennar Corp and KB Homes , said it is willing to rally behind a proposal that drops the mortgage interest tax deduction as long as it offers a homeowners tax credit.

"Now our policy is much more flexible," said Jerry Howard, president of NAHB. "It gives us a unique opportunity to help craft a unique tax policy as it is related to housing."

Republicans in Congress are hoping to move quickly on crafting a tax overhaul by the end of the year. But doing so is likely to trigger opposition from powerful lobbying groups. President Donald Trump has vowed to have a tax code overhaul completed in his first year in office.

There currently is not a written proposal to create a homeownership tax credit to replace the mortgage interest deduction, so it is not clear how it could affect either individual taxpayers or the real estate market.

But Howard said he views it as important to be willing to embrace "creative" alternatives as they are being discussed in Congress, saying that members of the tax-code-writing House of Representatives Ways and Means and Senate Finance committees have expressed interest in creating a homeownership credit.

Despite the new flexibility from the home builders, the National Association of Realtors has not embraced a shift away from the mortgage interest deduction and could prove to be a powerful force if the group feels the tax proposals would eliminate home ownership incentives. A spokesman from the group did not return a request for comment.

(Reporting by Ginger Gibson; Editing by Leslie Adler)