BERLIN -- Hundreds gathered in Annapolis on Wednesday, including a large contingent from the Ocean City area and the Eastern Shore, to protest a proposed reduction in Maryland’s mortgage interest deduction many believe could further derail the state’s struggling housing industry.

Gov. Martin O’Malley’s proposed budget introduced in January includes a cap on many itemized deductions for Maryland taxpayers in mid- to upper brackets. The proposed plan includes cutting itemized deductions for individuals or couples earning $100,000 to 10 percent and reducing by 20 percent the itemized deductions for individuals or couples earning $200,000 or more.

Hidden in the proposed cuts is a reduction of the mortgage interest deduction enjoyed by homeowners across the state. The mortgage interest deduction is a major one for most taxpayers in Maryland and some fear eliminating or reducing it significantly could curtail homeowner affordability at a time when the real estate market is showing slow signs of recovery.

To that end, a large contingent of Realtors, homeowners and concerned citizens descended on Annapolis on Wednesday to protest the proposed cuts in advance of a hearing in the Senate on the budget bill. The throng, which included a large contingent from Ocean City and the Eastern Shore, braved torrential rains to make sure their disapproval of the proposed deduction cut was heard.

“We had a very large contingent from the Eastern Shore and the Ocean City area in Annapolis,” said Coastal Association of Realtors Government Affairs Director Joan Strang on Wednesday. “There were hundreds of people at the rally from all over the state and we were well represented.”

Strang said tampering with the mortgage interest deduction posed a threat to the housing industry and would likely eliminate an important incentive for many would-be buyers.

“This mortgage interest deduction is very important,” she said. “It’s one of the real benefits of homeownership and eliminating it would seriously undermine the housing recovery. It’s been in place for over 100 years and any change in it now is going to due homeownership.”

Maryland Association of Realtors President Pat Terrill said the foul weather did little to curtail the spirit of the rally on Wednesday.

“It was a great day for the Maryland homeowner,” she said. “Our voices were loud and clear. Don’t touch the mortgage interest deduction, not now, not ever.”

Terrill said nurturing a recovering real estate industry, not curtailing it with increased deductions and tax limitations, was at the heat of the issue.

“A healthy housing industry will lead the way to a healthy economy,” she said. “The harder it rained, the louder we were. The Realtors will continue to fight for the homeowner and private property rights.”

Sen. Jim Mathias (D-38) said the mortgage interest deduction cut was part of the governor’s larger package to limit itemized deductions for some of Maryland’s higher wage earners, but that he couldn’t support the reduction at the expense of the struggling real estate market. Mathias, who attended the rally on Wednesday, commiserated with the Realtors’ view on the deduction cut.

“The concern is this could further stymie the real estate industry, which has shown signs of improvement,” he said. “Their biggest fear is that this could keep a foot on the neck of the real estate market.”

Already there appears to be support for retaining the mortgage interest deduction as state lawmakers begin to tackle the proposed budget line by line.

“As always, the governor proposes and the legislature disposes,” said Mathias. “I think they’ve rethought it and looks like there will be some alternative proposal, but we’re still a long way from home.”