The mortgage interest deduction, which allows borrowers to deduct the interest paid on home loans from their income taxes, has been around for more than a century — and it’s so popular that most lawmakers don’t dare touch it. But the incoming Trump administration may have no such qualms, according to a report.
“We’ll cap the mortgage interest, but we’ll allow some deductibility,” Steve Mnuchin, Trump’s Treasury secretary pick, told CNBC.
The mortgage interest deduction currently has a cap at loans up to $1 million for married taxpayers filing jointly and $500,000 for those filing individually. With the median home price in the US around $200,000, most people don’t make it to the cap, CNBC reported. And according to CNBC’s Diana Olick, the “vast majority” of those who benefit from he deduction earn more than $100,000 a year and are not “the most cost-burdened of homeowners.”
“The deduction is very popular, but it benefits far fewer taxpayers than one might think,” Olick wrote.
According to Olick, one third of homeowners don’t have a mortgage, so the deduction wouldn’t apply to them. Many among lower- and middle-income families either don’t pay federal income tax or don’t itemize, so the deduction wouldn’t benefit them either.
“Only about 40 million (or 22.5%) of the 173 million households in the U.S. benefit from the mortgage interest deduction, according to the Tax Policy Center,” Olick wrote. And if, as Mnuchin suggested, Trump caps the deduction at $100,000, it still wouldn’t affect most borrowers, according to CNBC. On a $500,000 mortgage, the total annual interest payment would be about $23,000, well below the proposed cap.
Still, real estate industry leaders don’t want to see the current mortgage interest deduction changed — especially when they’re trying to convince millennials to invest in homes, according to CNBC.
“We would strongly oppose any attempt to limit or eliminate the mortgage interest deduction,” William E. Brown, president of the National Association of Realtors, told CNBC. “Realtors know that the MID is an important benefit not just for the millions of current homeowners who depend on it, but also for renters looking to make the transition into homeownership.
“we’re living in a time of tight credit and low inventory, with homeownership rates overing around a 50-year low,” Brown said. “Doing anything to make it harder for buyers to enter the market is a fundamental step in the wrong direction.”