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In a time when the U.S. government is looking for tax hikes and ways to cut back and reduce the federal deficit of $16 trillion, the homeowners' mortgage interest deduction is on the chopping block. While the whole deduction might not be scrapped, modifications and limitations to it could affect many homeowners.

According to the Christian Science Monitor/TIPP survey, Americans would rather lose the charitable giving tax deduction than the mortgage interest deduction. The National Association of Realtors (NAR) reports that's because it's a middle class key incentive that helps Americans build wealth.

Suggestions from economists range from implementing an overall cap on itemized deductions, to eventually having a flat credit for the mortgage interest deduction. Other ideas include capping the amount of the deduction, say, at $500,000 instead of $1 million "or the rate at which mortgage interest deducted would be lower than the top marginal tax rate," said Jed Kolko Chief Economist of Trulia.com. A complete abolishment of the mortgage interest deduction "could greatly destabilize the economy," says Dr. Lawrence Yun, NAR Chief Economist.

Approximately half of the amount of tax deductions taken by Americans are housing- related. Homeowners who haven't paid down a lot of principal will be hurt the most. Millions of Americans take a tax deduction that can amount to anywhere from an average of thousands of dollars to tens of thousands of dollars per year thanks to the mortgage interest deduction.

Those in favor of reducing or eliminating the mortgage interest deduction claim that it could save the federal government $108 billion annually. Some argue that the mortgage interest deduction is not used by many. New research by USA Today showed that in 2010 only 26 percent of homeowners countrywide used the deduction on their taxes and wrote off their interest paid on their mortgage. However, the study points out that not all taxpayers can use this deduction. It's "only available to those who itemize deductions." A taxpayer's mortgage interest, charitable giving, and other expenses need to be greater than the standard deduction offered.

Expensive housing states like California, Washington, Hawaii, Virginia, Maryland, and Nevada would feel the pinch. Those states can see on average a tax break from the mortgage interest deduction alone of about $12,000 a year per taxpayer which is over the standard deduction for a married couple, filing jointly in 2012 ($11,900).

Many believe that if the mortgage interest deduction is modified or eliminated it will send the real estate market into a tailspin and cause the progress that the market has made to shrink. Opponents also believe this will hurt future buyers who are currently renting.

The National Association of Home Builders says that 73 percent of those it surveyed are opposed to any changes in the mortgage interest deduction. The California Association of Realtors found that 79 percent of buyers listed the mortgage interest deduction as extremely important when it comes to deciding if they'll purchase a home.