The National Association of Realtors estimated that housing prices could decline 15 percent, bad news for owners who have seen the value of their homes increase.

"You're going to be taking away from Middle America," said David Lereah, the association's chief economist. "Everyone, whether you use the mortgage interest deduction or not, the value goes down. You've just reduced the retirement nest egg for everyone."

The current tax break lets homeowners deduct interest paid during the year on a mortgage up to $1 million and a home- equity loan worth up to $100,000.

The President's Advisory Panel on Federal Tax Reform urged the administration to do away with the deduction and replace it with a credit worth 15 percent of interest paid during the year.

Mortgages eligible for the tax break would be limited by a formula reflecting the average regional price of housing. If in place today, that range would spread from $227,000 to $412,000.

that period of transition, a taxpayer could still take a deduction, but the size of the mortgage eligible for a tax break would gradually fall. At the end of five years, everyone would be using the proposed credit.

Connie Mack, a former Florida senator and chairman of the tax panel, said less than 5 percent of mortgages in the nation exceed the proposed cap.

Taxpayers who bought $1 million homes expecting a generous tax break could be in for a shock, said Michael Mike Fratanponi, senior director of single- family research and economics at the Mortgage Bankers Association.

Clint Stretch, director of tax policy for Deloitte Tax, calculated that housing gets more expensive, for example, for a family carrying a $500,000 mortgage and earning income in the 25 percent tax bracket. The proposal would take away $4,400 of the tax benefit.

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