NCPA - National Center for Policy Analysis

Eliminate the Mortgage Interest Deduction

August 1, 2011

The mortgage interest deduction does not increase homeownership rates and amounts to little more than a subsidy for wealthy homeowners, according to a new Reason Foundation study that recommends eliminating the deduction and streamlining the tax code.  The Reason Foundation report suggests a revenue-neutral solution: eliminate the mortgage interest deduction and lower federal income tax rates for all Americans by 8 percent.

  • The mortgage interest deduction was used on about a quarter of all tax returns filed in 2009.
  • But the Reason Foundation report shows the home mortgage deduction was used on 73 percent of tax returns filed by those with incomes over $200,000 that year.
  • The average tax savings for those homeowners: $2,221.
  • In contrast, just 5.5 percent of tax returns filed by those making $20,000 to $30,000 used the mortgage interest deduction in 2009, with no significant tax savings.
  • Thirteen percent of tax filers making between $30,000 and $40,000 used the mortgage deduction.
  • Their tax savings was a paltry $96.
  • And 23 percent of tax returns with incomes between $40,000 and $50,000 used the mortgage interest deduction, with an average tax savings of just $114.

The study finds that the mortgage interest deduction has not increased homeownership rates and that eliminating it would not reduce homeownership figures or hurt housing prices.

Source: "Unmasking the Mortgage Interest Deduction," Reason Foundation, July 28, 2011.

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