Value of Mortgage Interest Deduction?

NLIHC Proposes Reform to Fund NHTF

Value of Mortgage Interest Deduction?An article published in the spring 2014 issue of National Affairs reports on a study by economists associated with the R Street Institute on the effectiveness and efficiency of homeownership tax subsidies.

Entitled “Rethinking Tax Benefits for Home Owners,” the article’s authors examine the federal income tax treatment of homeownership (mortgage interest deduction, property tax deduction, and exclusion on capital gains) along several dimensions using zip-code level IRS data.

They conclude that the homeowner tax subsidies are “highly regressive, extremely expensive, and of little obvious value to society at large.”

The arguments in this article are similar to those made by that National Low Income Housing Coalition (NLIHC) and others about the need to reform the Mortgage Investment Deduction (MID.)

The authors suggest that a tax credit on mortgage interest would do more to support low and moderate income homeowners than current policy.

NLIHC has proposed lowering the cap on the size of mortgages for which interest can be deducted from $1 million to $500,000 and converting the MID to a 15% non-refundable tax credit. The number of homeowners who would get a tax break under this proposal would grow from 39 to 55 million. Virtually all (99%) of new beneficiaries would have incomes under $100,000.

NLIHC proposes that the revenue raised by this change ($200 billion over ten years) be used to fund affordable rental housing for extremely low-income households through the National Housing Trust Fund (NHTF.)

Click here to read the full article.

Click here to read more about the NLIHC proposal.