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Mortgage Interest Deduction

The mortgage interest deduction (MID) is a remarkably effective tool that facilitates homeownership. NAR opposes any changes that would limit or undermine current law.


Under the current tax law, homeowners are allowed a deduction for mortgage interest paid.  The deduction is generally allowed for interest paid on mortgage debt of up to $1 million, and is available for interest on mortgages for a principal residence and one additional residence.  The $1 million limitation represents the combined allowable debt on two residences.  Mortgage interest on up to $100,000 of debt on home equity loans or lines of credit also qualifies for the deduction.

As part of its budgets for the past number of years, the Obama Administration has proposed reducing the value of all itemized deductions (including the mortgage interest deduction (MID)) for higher-income taxpayers.  This would be done by limiting the value of itemized deductions to 28 percent for taxpayers who are in tax brackets higher than 28 percent.  Thus, individuals who are in the 33 percent, 35 percent, or the 39.6 percent tax brackets would find their itemized deductions worth less under this proposal.  In other words, an individual in the 35 percent tax bracket currently gets 35 cents on the dollar benefit of a deduction, where under the proposal, the deduction would be worth only 28 cents on the dollar.

To date, limits on itemized deductions have not been part of the legislative agenda, though many in Congress say that "everything is on the table." In early 2014, former  House Ways & Means Committee Chairman Dave Camp (R-MI) released a draft tax reform plan that would have drastically reduced the benefit of the MID.  Specifically, the proposal would have lowered the cap on the size of mortgage loans for which the interest is deductible from the current level of $1 million to $500,000 in four steps.  But much more significantly, the proposal would also have reduced the number of taxpayers eligible to claim the MID from around 33 to 35% today to an estimated 4 to5%.

The Camp plan was a discussion draft, and it did not garner any significant support from even House Republicans.  Camp has now retired from the House and the focus of tax reform in 2015 and so far in 2016 has been on business and international tax reform, and not on the individual side.    However, with a new president and many new Members of Congress taking office next year, the outlook for tax reform for individuals may improve drastically, and many of the ideas of the Camp draft tax reform plan might be resurrected, including this drastic change to the MID.  Therefore, NAR continues to watch this issue very closely.

REALTORS® can expect the MID to be under continuing scrutiny and the subject of proposed changes as the Nation’s leaders examine different ideas for improving our tax system.