How Not To Reform the Mortgage Interest Tax Deduction - DailyNews.
On Thursday, House Republicans revealed their much-awaited tax reform legislation. One of its most-discussed features is a modification to the mortgage interest tax deduction (MID): The bill proposes capping the mortgages on new homes for which interest can be deducted at $500,000—half of the $1 million in home loans American can currently claim this tax break on.
Taken in a vacuum, this is not a bad move. But in conjunction with the other parts of this Republican tax plan, it achieves the same thing it was doing before: recycling inequality.
Economists and housing advocates have been making a case for reforming the MID for a while now. The ostensible goal of the MID tax break is to boost homeownership, which research shows it does not actually do. That’s because this subsidy overwhelmingly benefits rich taxpayers, who’re already well-positioned to buy homes. In 2014, households bringing in over $100,000 claimed 82 percent of this benefits. It makes sense; these households tend to have larger mortgages, and therefore, higher interest payments to deduct. They are also much more likely to itemize instead of a opting for a standard deduction, because they get a lot more cash back that way.
But even among MID beneficiaries, the folks who take out mortgages higher than $500,000 are few and far in between. According to a National Low-Income Housing Coalition (NLIHC) report, only 5 percent of total mortgages taken out in between 2012 and 2014 were over this threshold. Most of these were concentrated in a few coastal housing hotspots in Washington D.C., Hawaii, and California.
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