Tweet Nov. 21, 2012 -- Should Mortgage Interest Be Deductible?

The United States is one of a very few countries that allow homeowners to deduct mortgage interest from their taxable income. The others are Switzerland and the Netherlands, both of which impose a tax on the imputed income of home ownership, which makes interest deductibility a partial offset to the imputed income on which taxes are paid. To my knowledge, the United States is the only country that makes mortgage interest deductible without taxing imputed income from home ownership.

The argument against deductibility is that our income tax system is designed to be progressive, with tax rates increasing with income, but mortgage interest deductibility is the opposite, with the benefit rising with income level. Indeed, many low and moderate-income homeowners obtain no benefit at all from interest deductibility because they do not itemize their deductions.

No evidence has ever been developed suggesting that mortgage interest deductibility increases the home ownership rate. Deductibility does not affect mortgage qualification requirements, since maximum debt-to-income ratios are based on the borrower's gross income, not income net of deductions.

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