Whenever the United States enters into a new political administration, there is no guarantee that a previous president’s policy priorities will be kept intact.
However, one policy that has been held over many a president’s administration is the Mortgage Interest Deduction (MID), which was enacted in the 1950s.
That may change soon.
With the newest administration pushing hard for tax reform, the MID could come onto the chopping block, to the chagrin of the National Association of Realtors (NAR), who has been protecting it for many years.
“We would have strong objections over any effort to cap or eliminate the MID,” spokesperson said. “It’s our hope that leaders in Congress will move forward [with tax reform] with homeowners in mind.”
NAR took the opportunity to testify before the Senate Finance Committee earlier in October to urge senators to keep the current MID alive as written in the federal tax code.
With talks in August of trying to cap the MID by Treasury Secretary Steven Mnuchin, NAR has been very interested in what this era of potential tax code overhaul could mean for homeowners and buyers.
The MID started in the middle of the 20th century as a way to make home buying and ownership more accessible and attractive for the middle class. According to economist Bruce Bartlett, the MID offered the new middle class of the 1950s a new way to “reduce their tax liability.”
The MID does this by allowing a homebuyer to write of interest accrued on a home loan as a deduction on their federal income taxes. A homebuyer then would able to consider this information when they look at how much they can borrow and how much they can afford to invest in a home.
If the MID was removed, or capped, this could change how much your potential homebuyer would spend in taxes.
The Tax Foundation, a nonpartisan tax policy research institute, found that a cap on the MID would essentially raise taxes sharply on the the highest income–the 1 percent–income bracket.
The middle class may experience a small increase as well, but only a tenth of one percent. This cap would also increase revenue in Uncle Sam’s pocket, to the tune of $95.5 billion after the first decade of a cap being enacted.
But to every policy there is another element, outside the areas of dollars, cents, and percentages: the human element. The targeting of the MID during a tax reform could send the wrong message about the faith in many American’s dream goal of homeownership.
It could impact the market for real estate agents and Realtors alike with smaller incentive and ability to buy a home.
Time will only tell if the NAR is successful in protecting the Mortgage Interest Deduction from tax reform efforts.
Alexandra Bohannon has a Master of Public Administration degree from University of Oklahoma with a concentration in public policy. She is currently based in Oklahoma City, working as a freelance filmmaker, writer, and podcaster. Alexandra loves playing Dungeons and Dragons and is a diehard Trekkie.
