Responding to sharp criticism of its initial proposal to slash the tax deduction for home-mortgage interest, President Bush’s tax-restructuring panel offered a revised and final plan Tuesday to increase its proposed cap on the write-off by 25 percent, media accounts said.

But the new level — ranging from $227,147 to $411,704 depending on a region’s housing prices — still would be far below the average mortgage in high-price markets such as the San Francisco Bay Area, New York City, Washington, D.C., and South Florida, accounts said.

Homeowners now can write off interest on up to $1.1 million in mortgage debt.

The tax panel’s mortgage-interest recommendation is viewed as a long shot to become law.

Even boosting the proposed cap by 25 percent didn’t stop the panel’s plan from being criticized by officials ranging from California’s state treasurer to leading Democrats in the House of Representatives from San Francisco, Maryland and Illinois.

The panel’s report notes that fewer than 30 percent of American taxpayers benefit from the mortgage-interest deduction, and fewer than 5 percent of mortgages would be affected by reducing the $1 million cap. The panel said current policies raised the question of “whether the tax code encourages overinvestment in housing at the expense of other uses,” according to media reports.

The panel proposes to replace the current mortgage-interest deduction — which can range in value depending on a homeowner’s tax bracket — with a 15 percent tax credit on mortgage interest that would be available to every taxpayer. The plan would phase in over five years for existing mortgage holders.

The new cap would be linked to Federal Housing Administration mortgage limits set county-by-county each year based on the cost of a “modest” home. Those limits range from $172,632 in low-cost states to $312,895 in the most-expensive counties.


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