How the Mortgage Interest Tax Deduction Works

Controversies About the Mortgage Tax Deduction

The government originally created the mortgage tax deduction to help middle-class Americans buy homes. It's a popular and almost sacred policy, having been around for decades. However, many academics and policymakers believe the mortgage tax deduction is outdated and ripe for reform.

They point to research that says the deduction benefits the rich more than the poor, as the rich receive more back on their taxes. Most benefits go to households making six figures or more and middle-class families usually receive only about $51 per month off their mortgage. The deduction does appear to give middle-class families more purchasing power, but they only bought houses about 3 percent higher than they would've otherwise [source: Randazzo & Stansel].

Other opponents of the mortgage tax deduction say that 22 percent of tax filers claimed the deduction in 2012, costing the federal government $68 million in revenue. And, as previously stated, more than three-quarters of the benefit went to households with more than $100,000 in annual income [source: Rubin].

Some ideas for reform suggested by bipartisan groups, economists, and President Barack Obama include:

  • Lowering the $1 million cap
  • Eliminating the tax break on second homes
  • Converting the deduction to a credit, which could equalize treatment across income groups

Experts agree any changes would have to be phased in order to prevent major effects on the real estate market. Real estate industry representatives oppose making any tax changes for fear it would bring down housing prices, destabilize the economy, and make it more difficult for the middle class to buy homes [source: Blumberg]. This is a debate that likely won't end anytime soon, so for now, the mortgage interest tax deduction is here to stay.

For more about taxes and deductions, check out the links below.

Related Articles


  • Adams, Laura, MBA. "Deduction Dangers, Part 1: Mortgage Interest." March 27, 2012. (Oct. 11, 2014)
  • Blumberg, Alex. "Why Does The Mortgage-Interest Tax Deduction Still Exist?" NPR. June 6, 2012. (Oct. 11, 2014)
  • McWhinney, James E. "Tax Deductions On Mortgage Interest." Investopedia. 2014. (Oct. 11, 2014)
  • Randazzo, Anthony and Stansel, Dean. "Mortgage Interest Deduction Saves Middle Class Taxpayers All Of $51/Month." Forbes. Dec. 18, 2013. (Oct. 11, 2014)
  • Rubin, Richard. "Lawmakers Weigh How to Curb Mortgage Interest Tax Break." Bloomberg. Apr. 26, 2013. (Oct. 11, 2014)
  • TurboTax. "Deducting Mortgage Interest FAQs." 2013. (Oct. 11, 2014)