Options to Reform the Deduction for Home Mortgage Interest

Research Report

Options to Reform the Deduction for Home Mortgage Interest

Abstract

Taxpayers can currently deduct interest on up to $1 million in acquisition debt used to buy, build, or improve their primary residence or a second designated residence. They can also deduct interest on up to $100,000 in home equity loans or other loans secured by their properties, regardless of the purpose of loans. This brief considers three proposals for restructuring the mortgage interest deduction: replacing the deduction with a 15 percent non-refundable interest credit, reducing the ceiling on debt eligible for an interest subsidy to $500,000, and combining the substitution of the credit for the deduction with the reduced limit on the interest subsidy.

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