Limiting Home Mortgage Deduction Would Raise Revenue

Morning Edition's series, "Twelve Days of Tax Deductions," zeroes in on some of the tax breaks that lawmakers are grappling with as they try to avoid the "fiscal cliff." The home mortgage interest tax deduction is one of the biggest breaks in the tax code.

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STEVE INSKEEP, HOST:

Our regular listeners know by now we've been spending part of this holiday season exploring the tax code. So much of that code is up for debate as fiscal negotiations stagger forward, so we're learning what the rules are in our 12 Days of Tax Deductions.

(SOUNDBITE OF SONG, "12 DAYS OF CHRISTMAS")

DAVID GREENE, HOST:

No, you cannot necessarily write off 10 lords a leaping, especially if they're in the higher tax bracket. But on day 10, we will look at a deduction that is taken by millions of Americans. It's the Home Mortgage Interest Deduction. Right now, mortgage holders can deduct, from their taxable income, the interest paid on home loans.

INSKEEP: This deduction is so closely tied to homeownership, it seems like part of the American dream, but it was not always this way.

MARTIN SULLIVAN: The home mortgage interest deduction really came about by chance.

INSKEEP: That's Martin Sullivan, who is an economist who writes for the publication Tax Analysts.

SULLIVAN: When the income tax originated in 1913, interest expense was deductible because it was considered a business expense. There wasn't really a lot of consumer borrowing like we have now. But over time, people started getting mortgages and bigger mortgages, and nobody really envisioned it as an incentive for homeownership.

GREENE: Well, now it's one of the largest tax breaks in the U.S. tax code. Some call it a housing subsidy worth about $100 billion a year. Past efforts to modify or eliminate the deduction have failed, though there is talk of limiting it as one way to raise more federal revenue. And that's the latest of our 12 Days of Deductions.

INSKEEP: Now, if you get a tax refund, part of the fun is deciding what to do with it. Save it. Pay off some bills. Maybe make a purchase.

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