Analyzing Reforms to the Mortgage Interest Deduction

CBO Outlines Pros and Cons of Proposals to Reforms to the Mortgage Interest Deduction

On December 8, 2016, the Congressional Budget Office (CBO), a nonpartisan agency that provides budget and economic analysis to Congress, released a new report outlining the pros and cons of 115 proposals to increase revenue or decrease spending including reforms to the mortgage interest deduction.

The Options for Reducing the Deficit: 2017 to 2026 report includes a detailed analysis of the United for Homes proposals to reduce the amount of a mortgage eligible for mortgage interest tax relief from $1 million to $500,000 and to convert the deduction into a 15% non-refundable credit.

The report finds that enacting the United for Homes reforms would:

  1. make the tax system more progressive,
  2. would promote home-ownership by ensuring that more low and moderate income families could benefit from mortgage tax relief, and
  3. would generate significant savings.

The CBO also notes that, as currently written, the mortgage interest deduction largely benefits higher-income taxpayers who would have become home-buyers with or without the deduction.

While the report points to some possible downsides to reforming the mortgage interest deduction, including decreasing the tax break received by higher-income homeowners, it suggests that most of these can be mitigated by phasing in the reforms.

Effects of Reforms of the Home Mortgage Interest Deduction by Income Group and by State

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