US lawmakers considered changes to a popular tax deduction for mortgage interest last week, as they looked for ways to fill record budget deficits.
The tax deduction allows US home buyers to deduct a portion of the interest paid on mortgages for decades as a way to promote home ownership. The tax deduction costs the US Treasury about $100bn each year, is the largest subsidy for homeowners, and is the nation’s third-largest tax break. About 35m households claimed the mortgage interest deduction in 2009.
The deduction has frequently been criticized for providing a greater benefit to taxpayers with higher incomes than those further down the scale. The maximum amount of eligible mortgage debt for the deduction is currently $1 million.
Experts say that killing the deduction would harm the housing market and undermine the goal of fostering home ownership. US home ownership fell to 66.4% from its high of 69.2% in 2004, according to the US Census Bureau.
Some analysts say that removing the deduction would create a tax system that favours renting instead of buying your own home. Yet others argue that homeownership incentives need to be re-evaluated in light of the financial crisis of 2007-2009.