The Mortgage Interest Deduction Is a House of Cards – Just Taxes Blog

House of Cards
August 12, 2019
August 12, 2019 During the debate leading up to the passage of the 2017 Trump-GOP tax law, some voiced concerns that its provisions limiting the reach and generosity of the mortgage interest deduction could cool the housing market. But new evidence confirming that these worries were overblown should embolden policymakers to permanently eliminate the deduction. A recent analysis by The New York Times found no meaningful divergence in home prices when comparing the areas where larger shares of middle-class taxpayers previously claimed the mortgage interest deduction to areas where homeowners used the deduction less frequently. Even before the Tax Cuts and Jobs Act (TCJA), most families did not claim the home mortgage interest deduction because they did not own their homes or because they claimed the standard deduction. After TCJA, the number benefiting fell precipitously. An ITEP report published last year estimated that the new law reduced the share of taxpayers claiming the mortgage interest deduction from 23 percent to 11 percent. The change that TCJA made directly to the deduction is relatively minor — shrinking the maximum eligible mortgage amount from $1 million to $750, 000. Indirectly, however, ....


The result is a big jump in the number of taxpayers for whom the standard deduction is more generous than the sum of the itemized deductions they can claim. So now many with home mortgages get a better deal if they claim the standard deduction. The remaining recipients of the mortgage interest deduction are an even smaller and higher-income slice of taxpayers. The ITEP report estimates that among the richest 1 percent, the share claiming the deduction fell from 84 percent to 80 percent, but for other groups, it fell much more dramatically. For example, among the middle 20 percent of taxpayers, the share claiming the deduction to fall from 16 percent to 5 percent. Today, taxpayers in the bottom 60 percent account for just 13 percent of those claiming the deduction, down from 18 percent. Given how much more exclusively this deduction now benefits the highest-income households, its continued existence is hard to justify. .

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