Why We Can't Compromise on the Mortgage Interest Deduction
Housing is the engine that drives this economy, and to even mention policy changes that would reduce the tax benefits of homeownership could endanger property values. Home prices, particularly in high cost areas, could decline 10 percent or more if the mortgage interest deduction were repealed or limited. That could mean at least a $25,000 reduction in housing equity for a typical homeowner.
The Tax Reform Act of 1986 proved that when the tax benefits associated with real estate ownership are curtailed, the value of real estate declines. In that case, the resulting loss of value in the commercial real estate sector was 30 percent.
The current cap permitting deductions of the interest paid on mortgages of up to $1 million has not been modified or indexed since it was adopted in 1987. Had it been indexed at the time, the cap would be more than $2 million now. At a minimum, the cap should be indexed for inflation now.
Eliminating the mortgage interest deduction would hurt middle-income families the most. According to IRS tax return data from 2014, almost two-thirds (64 percent) of the families who claim the mortgage interest deduction have household incomes between $50,000 and $200,000, and 42 percent have incomes of less than $100,000.
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