The debate over the benefits of the perennial mortgage interest deduction has taken a new twist with the release of President Obama’s tax return, which shows that the first couple saved more than $13,000 by claiming the deduction on their Chicago home.
Homeowners with incomes between $40,000 and $75,000 who claim the deduction save just an average of $523 in taxes, economists at the University of Pennsylvania found.
Nonetheless, the mortgage interest deduction is a key tax saver for middle class homeowners, with two-thirds of the benefits helping households that earn less than $200,000 annually.
The deduction enables borrowers to reduce their taxable income by the amount of interest paid on a loan (or loans) with a value of up to $1.1 million.
“The mortgage interest deduction has been in existence since the inception of the federal tax code nearly 100 years ago and is a cornerstone of U.S. tax and housing policy,” said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Fla.
In a press release this week, the NAHB opposed any attempt by lawmakers to reduce or eliminate the mortgage interest deduction to raise tax revenues, saying it is a “a minority view that flies in the face of public opinion.”
However, some academic studies have reported that the deduction benefits the wealthy the most — and doesn’t really encourage homeownership.
The president and the first lady claimed a $47,564 home mortgage interest deduction on their home in Chicago, which they bought in 2005 for $1.65 million, according to their tax returns released Friday by the White House.
The Huffington Post reported that the deduction for the Obamas amount to $13,318 in savings on their federal tax bill, according to an analysis by Michael Gillen, director of the tax group at the Philadelphia law firm Duane Morris.
Despite the one-third of Americans who earn more than $200,000 annually and take the deduction, the vast majority of taxpayers don’t want lawmakers to mess with the tax break for homeowners.
A New York Times/CBS News poll conducted last summer showed that nine out of 10 Americans oppose eliminating the mortgage interest deduction and a nationwide survey of likely voters commissioned by NAHB earlier this year shows that 73 percent oppose abolishing the deduction.
“The American people understand that curtailing or getting rid of the deduction to help lower the federal debt would result in a big tax hike on millions of middle-class home owners and that prospective buyers who are counting on its benefits to lower their monthly mortgage payments would remain on the sidelines,” said Rutenberg.