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Homeownership

How many homeowners are impacted by proposed MID cap?

(REAL ESTATE NEWS) The mortgage interest deduction (MID) cap inserted in the proposed tax bill could impact more homeowners than originally thought.

Large house representing co-living.

As a part of the recent tax reform legislation release, the House proposed reducing the mortgage cap at which one can no longer deduct their interest payments from their taxable income by a factor of 50 percent. But how many people would this proposal actually affect? As it turns out, quite a few.

The current mortgage interest deduction (MID) sits at a cool million dollars, meaning that anyone who currently has a mortgage of up to $1,000,000 can deduct the amount of paid interest from their taxable income. These proposed changes would lower that number to $500,000 — still a respectable figure, some would argue.

That said, researchers at the National Association of Realtors (NAR) crunched the numbers, and the results are surprising: somewhere around 15 percent of Americans own homes with mortgages totaling at least $500,000 — and those numbers are “conservative” by NAR’s estimates.

Additionally, projections show fairly aggressive growth in the number of homeowners with $500,000-plus mortgages in as few as 10 years.

Once one adjusts for future inflation, the number of people who might be affected by this bill within the next ten years certainly isn’t negligible, with some states seeing almost twice the number of $500,000 and up mortgages within that time frame.

The bill wouldn’t affect people who now own houses with mortgages that are in excess of the proposed MID cap, but the current rate at which houses are rising in value means that the percentage of people affected could still be quite high, and anyone hoping to remodel or sell during this time will most likely have to contend with the revised MID cap if the legislature does pass.

Ultimately, NAR says a bill lowering the amount of deductions from taxable income will lead to a few things. First and foremost, homeowners whose mortgages meet or exceed the proposed MID cap may be reluctant to sell, resulting in scarcity and tampering with the market.

Equity value could potentially drop, and home values in general may be susceptible to dropping values as a result of the tax reform as it is currently proposed.

Jack Lloyd has a BA in Creative Writing from Forest Grove's Pacific University; he spends his writing days using his degree to pursue semicolons, freelance writing and editing, oxford commas, and enough coffee to kill a bear. His infatuation with rain is matched only by his dry sense of humor.

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