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1 Scott Eastman & Anna Tyger, The Home Mortgage Interest Deduction 1 (October 2019)

handle is hein.taxfoundation/hommtin0001 and id is 1 raw text is: The Home Mortgage Interest Deduction Scott Eastman Anna Tyger Federal Research Manager Research Assistant FISCAL FACT No. 671 Oct. 2019 Key Findings The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, and local levels. We are a 501(c)(3) nonprofit organization. @2019 Tax Foundation Distributed under Creative Commons CC-BY NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 taxfoundation.org * Currently, the home mortgage interest deduction (HMID) allows itemizing homeowners to deduct mortgage interest paid on up to $750,000 worth of principal, on either their first or second residence. This limitation was introduced by the Tax Cuts and Jobs Act (TCJA) and will revert to $1 million after 2025. * In 2018, less than 4 percent of taxpayers earning less than $50,000 will claim the deduction, and these taxpayers will receive less than 1 percent of the tax expenditure's overall benefits. Taxpayers making over $200,000 will make up 34 percent of claims and take 60 percent of the benefits. * Though the HMID is viewed as a policy that increases the incidence of homeownership, research suggests the deduction does not increase homeownership rates. There is, however, evidence that the deduction increases housing costs by increasing demand for housing. * Prior to the TCJA, the tax code largely treated the decision to save in owner- occupied housing or consume one's income neutrally. The tax code achieved this by allowing home mortgage interest deductibility, letting capital gains realized on the sale of owner-occupied housing go largely untaxed, and not taxing imputed rent. * The TCJA's reduction in the HMID's cap increased the effective marginal tax rate on owner-occupied housing, particularly for debt-financed housing. These changes disadvantage homeowners who rely on debt to finance their homes and increase the cost of saving in owner-occupied housing. * Policies that narrow the difference in effective marginal tax rates between owner-occupied housing and other forms of capital would improve economic efficiency. Making the deduction a tax credit would allow low-income taxpayers who don't itemize to benefit from this provision.

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