Ensuring Sound Homeownership-Related Tax Policies

MBA supports the existing deductibility of residential mortgage interest expenses and state and local real estate taxes. MBA also supports mortgage insurance premium deductibility--particularly for first-time, low- and middle-income homebuyers. The mortgage interest deduction is a longstanding pillar of U.S. housing policy and serves a critical role in making homeownership available for millions of middle income borrowers. Great care needs to be taken in evaluating any potential changes to the tax benefits for homeownership.

Overview:

  • Households make long-term economic decisions that take into consideration the tax treatment of major transactions, such as the purchase of a home.
  • Existing tax laws allow homeowners to deduct mortgage interest and real estate property taxes paid as part of their itemized deductions.
    • Recent annual federal budget proposals, as well as comprehensive tax reform proposals, could significantly reduce the overall impact and use of mortgage interest deductions and discontinue or curtail the deductibility of state and local property taxes on the taxpayer's principal residence.
  • Notably, the deductibility of mortgage insurance premiums expires at the end of 2016.

Impact:

  • The tax impact of buying a home affects the economics of the long-term decision to the consumer.
  • Curtailment of the deductibility of home mortgage interest and real estate taxes could adversely impact home sales activity and undermine price stability in the marketplace.
  • It is likely though that broad-based tax reform will be a priority in the next Republican-controlled Congress--with the majority seeking to lower tax rates across the board by broadening the tax base.
  • Any major tax reform overhaul could have profound implications for housing, thus any changes contemplated must be debated thoughtfully and considered against the backdrop of their potential net aggregate benefits for housing and homeownership.
  • Uncertainty with respect to the deductibility of mortgage insurance premiums would adversely impact first-time and low- and middle-income homebuyers that rely on mortgage insurance to purchase homes with lower downpayments.

MBA's Position / Next Steps:

  • MBA supports the existing deductibility of mortgage interest and real estate taxes.
  • Residential and commercial mortgage markets do best when the economy is growing and households and businesses are doing well financially. With this in mind, MBA urges Congress to carefully consider the impact of any proposed tax reforms on the broader economy, including the impact that any changes to mortgage-related itemized deductions would have on the value of homeownership-particularly for first-time, low- and middle-income homebuyers-and the housing market at large.

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