Mortgage Interest Deduction: Part 2

As noted in the previous blog (Mortgage Interest Deduction Pt 1), the National Association of Home Builders (NAHB) recently refuted criticism of the mortgage interest deduction (MID) as this homeownership tax benefit is again before Congress as part of potential tax reform. The following are additional points the NAHB makes in dealing with critics of the MID.

Critics of the MID often assert that the percentage of homeowners that actually claim the mortgage interest tax deduction benefit is small.

Data from the NAHB reveals that in any given year up to 70% of homeowners may claim the MID benefit, adding that, “almost all home owners benefit from the deduction at some point during their homeownership lifecycle.” Further refuting critics, the NAHB notes that of the approximate 66% of households that are homeowners nearly one-third own their home “free-and-clear,” thus no use of the MID.

Also, by IRS rules, only homeowners that itemize deductions can actually take advantage of the benefit, those using the standard deduction don’t qualify, and many of these are in the final years of their mortgage and don’t bother to itemize deductions.

Critics of the MID argue that repealing the mortgage interest deduction would make the tax code more progressive, meaning “one in which taxpayers with lower incomes pay a smaller share of their earnings in taxes than higher income households.” The NAHB responds by saying that repealing the MID would cause an even greater tax burden on the middle-class, adding that, “for households with less than $200,000 in adjusted gross income (AGI), the typical mortgage interest deduction is worth 1.76 percent of that family’s AGI. For taxpayers reporting more than $200,000 in income, the benefit falls to 1.5 percent of AGI.”

According to critics of the MID benefit, renters do not support the mortgage interest deduction.

The NAHB states that, “a 2012 poll found that a majority of renters were opposed to eliminating the mortgage interest deduction.” Traditionally the MID benefit has been an incentive for renters to push for homeownership.