Do we really need the mortgage tax deduction?

Congress is weighing ending or curtailing the popular tax break. Housing-industry groups strongly oppose any cuts, though only 25% of Americans get any tax benefit.

By Teresa at MSN Real Estate Dec 7, 2012 1:10PM

House made of a hundred dollar bill (© Metta image/Alamy)One of the issues that has bubbled to the forefront in the fiscal-cliff discussion is whether the federal government should do away with the tax deduction for mortgage interest.


The deduction, in effect since tax code was written in 1913, is one of those things that, if you like it, is a cherished benefit that aids homeownership, and if you don’t, is a tax loophole that costs the country money it can’t afford.


It is projected to cost the U.S. Treasury $100 billion next year. It has been variously proposed that the deduction be eliminated, that this deduction (or all deductions) be available only to those earning less than $250,000 a year for couples or $200,000 for individuals, or that the deduction be replaced with a tax credit. There is no leading proposal, though it is worth noting that we’ve been writing for at least three years that this cherished deduction is in jeopardy and yet it is still here.


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While the deduction is popular, only about 25% of U.S. taxpayers actually receive it. The percentage ranges from 15% in West Virginia to 36.79% in Maryland, according to the Tax Foundation.

To deduct your mortgage interest from your taxable income, you first have to own a home. Then, you have to itemize deductions. You also have to have a mortgage. That means that renters, lower-income taxpayers and those whose home is paid for don’t get the deduction.


The mortgage interest deduction is available to any homeowner with a mortgage, but it provides more tax savings for the wealthy – not surprisingly, since they are likely to have larger mortgages. The Wharton School of Business crunched some numbers, CNBC’s Diana Olick reported.

The deduction saves taxpayers who make less than $40,000 a year about $100 each. Since only one-quarter of those itemize, most don’t save anything. Taxpayers who make up to $250,000 a year save $1,200 to $2,600 a year in taxes. Taxpayers who earn more than $250,000 a year enjoy an average tax savings of $5,400 a year, Olick reported.

In a report, the National Association of Home Builders quoted statistics from the Joint Committee on Taxation that found that the majority of those who benefited from the deduction earned $50,000 to $200,000 a year – though nearly one-third of the total amount saved went to those with incomes over $200,000. Those statistics were from 2008 and used an unusual method of computing income.


Eliminating or curtailing the deduction is strongly opposed by the housing industry. The chief economist of the National Association of Realtors has said that ending the deduction could lower housing prices by 15%. Other sources, including the Reason Foundation, have said the decline in value would be closer to 3%.


Both the NAR and the builders’ group have  "calls to action" on their websites, urging people to tell their senators and representatives to oppose any repeal of the mortgage interest deduction.


But, looking over the fiscal cliff, is the mortgage-interest deduction something that should be sacred or is it time to talk about ending or curtailing the benefit?

Tags: loans
Dec 22, 2012 11:57AM
I scrimped and saved and did without for years in order to save up for my house. I bought it when I had enough money saved to pay cash for it. I don't have a mortgage or debt and I don't like having to pick up the slack, in the form of higher taxes, so someone else can get a tax break. You want a mortgage, pay for it yourself!
Dec 22, 2012 11:53AM
 Since Reagan took away the deductions for interest on loans/credit cards and limited deductions for medical and charitable deductions and lowered the top rate on the wealthiest from 70% to 35% the shift has been to slowly eliminate deductions for the 98% to enrich the 2%. Ryans original plan to pay for the republican 20% tax cut plan was to pay for it by eliminating the home mortgage interest deduction and the employer health plan exemption. Both are key middle class breaks to pay for tower rates that mostly benefit the 2%. This will continue until the middle class has no breaks and all the wealthy pay little or nothing. Ryan's original plan also tried to eliminate all tax on capital gains, dividend interest and estate taxes meaning people like Romney would pay nothing whether dead or alive. That's the goal.
Dec 22, 2012 11:53AM

I think the IRS should do away with the Earned Income Credit. 


Dec 22, 2012 11:47AM

EASY to fix this problem:


2. TAX Churches (70 billion a year)

3. Take out tax loopholes for corporate America that pay NOTHING in income tax.

4. SLASH the bloated industrial military complexes budget.

Dec 22, 2012 11:44AM
ONLY 25% of Americans get a benefit? MISLEADING because only 50% or less of Americans pay taxes that means if 25% of all Americans get a benefit then logically 50% of all taxpayers get a benefit. Get off our backs COMRADS! 
Dec 22, 2012 11:42AM
It would make more sense to eliminate earned incme credits that exceed the amount of taxes withheld/owed by a taxpayer.  It is even more imprtant that IRS docuent the children clalmed actually reside with the taxpayer and that the taxpayer is  legal resident/citizen.
Dec 22, 2012 11:40AM
It makes more sense to turn the mortgage deduction into a homeowner's tax credit if anything.  I have a hard time justifying the interest deduction because it encourages people to have bigger mortgages and NOT pay them off, and it disproportionately benefits the very wealthy with large mortgages.

When I itemize (I'm a homeowner), I save maybe $200 in taxes over not itemizing.

I think 2008's mortgage bubble kind of shows that pushing home ownership is not the brightest thing for the government to be doing.

A flat tax with a standard deduction and maybe a few tax credits is starting to appeal a lot more to me ... still progressive, but a lot less complicated come April 15.
Dec 22, 2012 11:33AM
The reasoning is absurd.  Letting citizens keep hard-earned money and building equity is costing the government billions!?!?   At least home construction and maintainence provides jobs.  Actuall, goverment spending and waste is costing citizens billions.  Government is for the people, not vice versa.  The government needs to start deducting from it's budet.
Dec 22, 2012 11:32AM
We usethe mortgage interet deduction o provide the funds to pay the taxes o the property. Blue collarworkers normally struggle to pay both atthe same time unless taxes are inclued in the mortgage payment
Dec 22, 2012 11:26AM
It isn't the number of deductions allowed that causes the fiscal problems in th United States, it is the amount of money and credits that are given to an unknown number of countries each year. Feds should have to list every country and the amount and reason for the money received. Also the special spending by members of our government to states need to end, after all it is just a ploy to get elected. Lets get back to For the People by the People, not the whole world
Dec 22, 2012 11:25AM
The deduction for home interest is greatly over emphasized by many taxpayers, realtors and others.
Interest is one of other itemized deductions.If your total of itemized deductions is less than the standard deduction,then it is not taken on a tax return.
If the total of itemized deductions is greater than the standard deduction, then the itemized deductions are subtracted from the adjusted gross income to determine taxable income.
Taxes are determined by calculations from the tax tables, less credits, payments etc.
Thus, when someone has $4,000 of interest paid for a mortgage, that does not represent the tax savings achieved by having a mortgage.
Real estate reps will quote that you can write off the $XXX of mortgage interest.But that is not the amount of tax shield realized.This deduction is more of an emotional issue than a defined tax benefit.It is a benefit for high income earners who have large mortgages.Many who purchase homes because of the "tax savings" actually do not benefit from the deduction.
Dec 22, 2012 11:22AM
I have itemized every year that I am able. The mortgage deduction has always been beneficial to me!
Dec 22, 2012 11:20AM

  Home owners take the risk that they will be able to make a living for twenty to thirity years in order to pay off a mortgage.  Renters have no such liablity, they can simply walk away at any time.  Shouldn't a person have an incentive to make this kind of committment?  Also, the banks are making a killing on mortgage interest per year, how much tax are they paying on their income from our income?


Dec 22, 2012 11:09AM
That is one deduction that most of us can do without.  We all need to sacrifice a little.
Dec 22, 2012 11:09AM
It only works if your itemized deductions exceed the standard deduction.
Dec 15, 2012 6:14PM
Yes. As most people will tell you in their own assumptions is that the mortgage tax deduction is that it is vital to their living. The reality is that the mortgage tax break is actually causing all sorts of problems to the economy, as seen in the past decade.
Mortgage tax break essentially punishing renters. In the great debate of "home ownership vs renting" renting has been shown to be more economical than buying, especially in recent years.

A second point of the ill logic of the mortgage tax deduction is that since its existence it has created a necessity for itself. The tax deduction essentially encourages people to take on debt. So in reality, the taxpayer is paying for other peoples debt.

Dec 15, 2012 5:07PM
Yet another bogus article by .  Me and most everyone I know do need help from this tax break.  We own home about 25% of our salary (within our means) and we each receive about $4000/year tax deduction from mortgage interest.  To cut $4000/year, it will make a HUGE difference.  It is SIGNIFICANT!!!!  Teresa, get your head outta something you stuck it in because your articles are all bogus.  Why do MSN pays for this junk writer?  Do the US of A have no better writer at the same rate?
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