Mortgage Interest Deduction Essay

1804 words - 7 pages

When income tax was written into the Constitution in 1913, Congress made all interest payments deductible. The mortgage interest deduction wasn’t specifically mentioned, but as more and more people began buying homes the deduction became recognized as a great benefit. Today, the ability to promote home ownership by providing a tax relief to homeowners is the main justification for the mortgage interest deduction. Some agree with the current structure of the deduction, while others believe it would be much more beneficial as a tax credit. They believe a tax credit would promote homeownership more efficiently because it would benefit taxpayers whether they itemize deductions or take the standard deduction, and it wouldn’t vary on a household’s marginal tax rate. Supporters of the current deduction argue that changing the deduction would derail the housing market. As proponents and opponents heavily defend their sides of the debate, the mortgage interest deduction still stands in its same form today.
The mortgage interest deduction can be claimed on any interest paid on a loan that is secured for a home (main and/or second home). The loan can be a mortgage to buy a home, a second mortgage, a line of credit, or a home equity loan. Home mortgage interest can be deducted from a taxpayer’s A.G.I. if the taxpayer files form 1040, itemizes deductions, and if the mortgage is a secured debt (home is put up as collateral) on a qualified home (Pub. 936). Mortgage interest is reported on Schedule A of form 1040 under the section “Interest You Paid”. The amount from Schedule A is reported on line 40 of form 1040. If a taxpayer elects to itemize their deductions and claim the mortgage interest deduction, they can no longer take the standard deduction.
Mortgage interest is fully deductible if the taxpayer meets the above conditions and the mortgage qualifies under any of three categories defined in Publication 936: (1) the mortgage was taken out on or before October 13, 1987 (grandfathered in), (2) mortgage was taken out after October 13, 1987 to buy, build, or improve a home, but only if throughout 2012 these mortgages plus any grandfathered debt totaled $1 million or less, or (3) mortgages taken out after October 13, 1987, other than to buy, build, or improve a home, but only if throughout 2012 these mortgages totaled $100,000 or less and totaled no more than the fair market value of the home reduced by (1) and (2) (Pub. 936).
Of the approximate 293.3 million returns that are claimed, $89.6 billion were claimed by the mortgage interest deduction in 2012 (JCX-10-13). Opponents of the current mortgage interest deduction (MID) point out that this is a huge expense to the Treasury department, and it is one of the largest federal tax expenditures (Koba). Many groups who are looking to make cuts to the federal budget and help the government save, have their eyes on the MID. While some are looking to help the government save, proponents of the MID claim that while...

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