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Mortgage Interest Deduction allows homeowners to reduce their taxable income by deducting the amount paid in mortgage interest. Learn how it can benefit housing and homeownership, check out the IRS rules and guidelines, download ebooks explaining the law, and find out why there is opposition to it.
Mortgage Interest Deduction Basics
Mortgage Interest Deduction: What You Need to Know (Mortgage Professional America Magazine, Apr. 18, 2022)
“If you claim the mortgage interest deduction on Schedule A of Form 1040, you will need to itemize rather than take the standard deduction when you file your taxes.”
What Is the Mortgage Interest Deduction? A Guide for Homeowners and Investors (Millionacres, Sep. 3, 2021)
As noted above, unfortunately, investors can only take this tax deduction if they use their second home as a rental property. If you have a standard investment property, you can still deduct your interest payment as a business expense if you file a Schedule E at the end of the tax year.
What REALTORS® Need to Know About the New Tax Law (National Association of REALTORS®, Feb. 25, 2019)
The new tax law has now lowered that $1 million limit to $750,000, but only for new mortgages taken out after December 14, 2017. For mortgage loans existing on that date, the limit is still $1 million. And interest on these "grandfathered" mortgages will remain deductible as long as the homeowner keeps the loan. Such loans can even be refinanced with the deduction retained, so long as the original term of the loan and the balance owed on the date of refinancing is not increased.
How Does the Mortgage Interest Deduction Benefit Housing and Homeownership?
Making Sense of the Mortgage Interest Deduction (Guaranteed Rate, Feb. 21, 2022)
“The best way to know which deduction is right for you, and how to take advantage of it, is to talk to a tax professional. “
Top Tax Advantages of Buying a Home (Investopedia, Jan. 27, 2022)
“In January, after the end of the tax year, your lender will send you Internal Revenue Service (IRS) Form 1098, detailing the amount of interest that you paid in the previous year.4 Be sure to include any interest that you paid as part of your closing. Lenders will include interest for the partial first month of your mortgage as part of your closing. You can find it on the settlement sheet. Ask your lender or mortgage broker to point this out to you. If it’s not included on your 1098, add this to your total mortgage interest when doing your taxes.”
Why Homeownership Should Continue to Be Incentivized by Our Federal Tax System (Rosen Consulting Group/National Association of REALTORS®, Feb. 2020)
As homeowners build equity the increased wealth leads to greater consumer spending that spurs business activity and provides a positive multiplier effect that creates jobs and income throughout the economy. Every 10% increase in total housing market wealth would translate to approximately $147 billion in additional consumer spending, or 0.8% of GDP, as well as billions of dollars in new federal tax revenue.
Why Is There Opposition to the Mortgage Interest Deduction?
Audit: Mortgage Tax Break Costs Oregon $500 Million Annually, Mostly Helps Wealthy White Homeowners (Oregon Capital Chronicle, Mar. 16, 2022)
“Oregon doesn’t collect information about race or identity on tax returns. However, auditors determined that most benefits flow to people who are white or Asian and not Hispanic, based on the demographics of Oregonians who own homes and make more than $100,000 annually.”
Racial Inequities In the Mortgage Interest Deduction (Enterprise Community Partners, Aug. 25, 2021)
“The MID, however, provides little benefit to BIPOC homeowners, and instead draws resources away from other policy options that could be used equitably support and facilitate homeownership for those who have been long denied it.
In This Housing Boom, Mortgages are for Losers (Bloomberg, Aug. 24, 2021)
The policy change that's needed is something that makes ownership more attractive for individuals than for investors. The mortgage interest deduction won't do it. It's a policy tool that's not particularly relevant for the buyers and homes in question because interest rates are already so low, and because the selling price of affordable homes is generally below the threshold for mortgage interest deductions. Plus, it's a policy tool that's out of favor with legislators.
Misdirected Housing Supports: Why the Mortgage Interest Deduction Unjustly SubsidizesHigh-Income Households and Expands Racial Disparities (National Low Income Housing Coalition/Brandeis, May 2021)
Eligibility for the MID is selective and exclusionary. A household needs to own a home with a documented mortgage with a lender, excluding renters and homeowners without mortgages. Under these eligibility criteria, the MID advantages white households who have consistently higher rates of
homeownership than households of color. The historic high homeownership gap between white and Black/Latino households further exacerbates the inequitable racial distribution of the MID. The MID aids households that have already experienced many advantages throughout the past century.
The Contradiction at the Heart of Housing Policy (Sightline Institute, Feb. 25, 2021)
Finish off the mortgage interest deduction and the state and local tax deduction by phasing them out over a decade—or making them moot by further raising the standard deduction.
The Mortgage Interest Deduction: Tax Subsidy for The Rich Must Go (Sacramento Observer, Jan. 22, 2021)
Households with at least six-figure incomes receive more than four-fifths of the total value of mortgage interest and property-tax deductions. And it doesn’t stop there: The mortgage interest deduction applies to second homes and/or vacation homes too! So the rich get away with deducting up to $2 million yearly from their state taxable income. Even the Trump administration thought that the MID cap was excessive and capped the federal deduction at $750,000 per home.
Rules, Forms, & Guidelines from the IRS on Mortgage Interest Tax Deduction
Topic No. 504 Home Mortgage Points (Internal Revenue Service, May 19, 2022)
The term points is used to describe certain charges paid to obtain a home mortgage. Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. Points are prepaid interest and may be deductible as home mortgage interest, if you itemize deductions on Schedule A (Form 1040), Itemized Deductions. If you can deduct all of the interest on your mortgage, you may be able to deduct all of the points paid on the mortgage.
Publication 530 (2021), Tax Information for Homeowners (Internal Revenue Service, Jan. 25, 2022)
Your deduction for home mortgage interest is subject to a number of limits. If one or more of the following limits applies, see Pub. 936 to figure your deduction. Also see Pub. 936 if you later refinance your mortgage or buy a second home.
Home Mortgage Interest Deduction: Publication 936 (For Use in Preparing 2019 Returns) (Internal Revenue Service, Dec. 7, 2021)
“This publication discusses the rules for deducting home mortgage interest. Part I contains general information on home mortgage interest, including points and mortgage insurance premiums. It also explains how to report deductible interest on your tax return. Part II explains how your deduction for home mortgage interest may be limited.”
eBooks & Other Resources
The following eBooks and digital audiobooks are available to NAR members:
The Complete Dictionary of Mortgage & Lending Terms Explained Simply : What Smart Investors Need to Know (EBSCO eBook)
The Complete Idiot's Guide to Mortgages (eBook)
The Everything Guide to Mortgages Book (eBook)
How to Have a Stress Free Mortgage : Insider Tips from a Certified Mortgage Broker to Help Save You Time, Money, and Frustration (EBSCO eBook)
Mortgage Confidential : What You Need to Know That Your Lender Won't Tell You (EBSCO eBook)
Mortgage Confidential (eBook)
Mortgage Myths (eBook)
Mortgages 101 (eBook)
Mortgages For Dummies® (eBook)
How to Invest in Real Estate & Pay Little or No Taxes (eBook)
The Home Mortgage Book (eBook)
The Mortgage Answer Book: Practical Answers to More Than 150 of Your Mortgage and Loan Questions (eBook)
The Mortgage Encyclopedia: The Authoritative Guide to Mortgage Programs, Practices, Prices and Pitfalls (eBook)
Mortgage Management for Dummies (Audiobook)
The Tax Lady's Guide to Beating the IRS and Saving Big Bucks on Your Taxes (eBook)
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