Most Americans will tell you that one of the benefits of buying a home is being able to deduct the interest. But is that a benefit that’s here to stay? And who really benefits from the deduction?
Getting rid of the mortgage interest deduction would be hard to accomplish. Besides being ingrained in the American psyche as a perk of home ownership, the concept is supported by high powered lobbyists representing the National Association of Realtors and the National Association of Home Builders.
Roberton Williams, senior fellow at the Tax Policy Center, says, “Many homeowners rely on the cost of the deduction, and if you undo that, there are enough people who are close enough to not being able to cover their mortgages that they’d be in trouble.”
For a benefit that is easily quantifiable, many Americans don’t realize that this tax deduction, like many others, favors high income earners. According to The Fiscal Times, households earning less than $50,000 per year (about half of all Americans) received only 4.3 percent of the benefits.
For example, if a family in the 15 percent tax bracket finances a $150,000 mortgage, that family will save $2,700 by deducting the interest. If, however, a family in the 35 percent tax bracket finances the same mortgage, that family will save $5,250, more than twice as much as the first family.
To skew the savings even further, the average mortgage financed by a family in the 35 percent tax bracket is about $800,000 which results in a whooping $17,000 tax savings.
Any attempt to abolish this favorite tax cut would have a better chance of approval if it instituted a phase out approach similar to retirement savings deductions. Either way, there is a lot of support for keeping this particular deduction in place.