The mortgage interest deduction enhances purchasing power for the middle class and should remain in place, writes guest columnist Tyler McKenzie.
TO paraphrase Benjamin Franklin, nothing is certain except death and taxes — and annual promises of tax reform. Just as certain are annual proposals to abolish the mortgage-interest deduction for homeowners.
Let’s keep in mind some real numbers that support our ownership society.
Despite claims by some that the mortgage-interest deduction is a homeownership incentive we can do without, it remains one of the most widely used and broad-based incentives for middle-class families.
There are 75 million owner-occupied homes in America. Nearly 37 million of those homeowners took the mortgage-interest deduction in 2010, according to testimony before the U.S. House Ways and Means Committee in April 2013. This represents more than 25 percent of all those who filed federal income-tax returns. Of the additional 38 million owners who have a small mortgage or own their homes free and clear, a vast majority took advantage of the mortgage-interest deduction at one time. That means the benefits of this homeownership incentive are spread far beyond the current number of annual income tax filers.
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The mortgage-interest deduction and the companion property-tax deduction are the greatest federal tax-reduction instruments available to middle-class families that itemize their federal returns. American homeowners now pay between 80 and 90 percent of all federal income taxes. To do away with the deduction means an instant tax hike for these families.
The mortgage-interest deduction also plays a role in the Millennial Generation’s pathway to homeownership. According to economists Jeff Curry and Jonathan Dent of the Internal Revenue Service’s Individual Research Section, roughly half of those claiming the mortgage-interest deduction were homeowners age 45 and under. The greatest tax benefit goes to those just starting their homeownership years, as it should.
Let’s look at the latest numbers for Washington state: Nearly 1 million homeowners, 30 percent of all tax filers in our state, take the deduction, according to the testimony submitted to the Ways and Means Committee. The average deduction is $12,615, according to the IRS. This equals a tax savings to these families of $3,154. When you add the property-tax deduction used by each of these families, the total tax savings are $4,120 per family each year.
For those who claim the mortgage-interest deduction is of minor value to these families, the numbers for Washington suggest a very different conclusion.
It’s not surprising that two-thirds of real estate professionals, as recently cited by Zillow, believe the deduction is vital to the housing market’s continued health. The professionals who work in the market every day understand the dynamics of this middle-class tax incentive. The mortgage-interest deduction has been in the federal tax code for more than 100 years, and there is no good economic reason to change it.
According to a 2014 survey by Fannie Mae, about three-fourths of millennial renters and nine out of ten millennial homeowners think that owning a home is a better choice than renting.
America’s 75 million homeowners clearly understand that ownership is more than just an economic calculus. Ownership not only helps establish the foundation for equity and security, it also builds communities, stability, pride and a better way of life for everyone. The economic, physical and social benefits of homeownership are well documented. The mortgage-interest deduction, although modest by some measures, enhances purchasing power for the middle class — and, in increasing numbers, for millennials — and should remain in place.