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The Tax Foundation is the nation’s
leading independent tax policy
research organization. Since 1937,
our research, analysis, and experts
have informed smarter tax policy
at the federal, state, and local
levels. We are a 501(c)(3) nonprofit
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Mortgage Interest Deduction
• Currently, the home mortgage interest deduction (HMID) allows itemizing
homeowners to deduct mortgage interest paid on up to $750,000 worth
of principal, on either their first or second residence. This limitation was
introduced by the Tax Cuts and Jobs Act (TCJA) and will revert to $1 million
In 2018, less than 4 percent of taxpayers earning less than $50,000 will claim
the deduction, and these taxpayers will receive less than 1 percent of the tax
expenditure’s overall benefits. Taxpayers making over $200,000 will make up
34 percent of claims and take 60 percent of the benefits.
• Though the HMID is viewed as a policy that increases the incidence of
homeownership, research suggests the deduction does not increase
homeownership rates. There is, however, evidence that the deduction
increases housing costs by increasing demand for housing.
• Prior to the TCJA, the tax code largely treated the decision to save in owner-
occupied housing or consume one’s income neutrally. The tax code achieved
this by allowing home mortgage interest deductibility, letting capital gains
realized on the sale of owner-occupied housing go largely untaxed, and not
taxing imputed rent.
• The TCJA’s reduction in the HMID’s cap increased the effective marginal
tax rate on owner-occupied housing, particularly for debt-financed housing.
These changes disadvantage homeowners who rely on debt to finance their
homes and increase the cost of saving in owner-occupied housing.
• Policies that nar