Repealing the mortgage interest deduction on second homes and home equity loans could raise as much as $80 billion over 10 years, according to a newly released estimate from the Tax Policy Center.
The idea of eliminating the mortgage interest deduction on second homes has been floated by bipartisan fiscal reform commissions and has been mentioned by Republican presidential candidate Mitt Romney as a possibility for inclusion in a broad tax reform package, but there have been few solid estimates about how much money the idea could raise.
The Tax Policy Center estimates that eliminating the deduction for second homes and home equity would raise $80 billion over 10 years under the current law baseline, which assumes that the 2001 and 2003 tax cuts will expire and the top tax rate will return to 39.6 percent in 2013, Eric Toder, co-director of the organization, told BNA Sept. 12.
Using a current policy baseline, which assumes that all of the 2001 and 2003 tax cuts will be extended at the top tax rate would remain at 35 percent, Toder said the Tax Policy Center estimates that eliminating the deduction would raise $70 billion over 10 years.
Romney has proposed reducing the top individual tax bracket to 28 percent, which would further reduce the amount of money that could be raised from eliminating the mortgage interest deduction on second homes and home equity, Toder said.
Small Share of Total Cost
In a separate Tax Policy Center estimate, the current mortgage interest deduction for primary residences, second homes, and home equity is expected to cost the government nearly $1.3 trillion over 10 years under current law or $1 trillion if the 2001 and 2003 tax cuts are extended.
Linda Goold, tax counsel for the National Association of Realtors, told BNA the sentiment that eliminating the second home mortgage interest deduction would raise a significant amount of money from high-income individuals is not evident in the data that is available.
“Once you’re over about $200,000 of [adjusted gross income], the mortgage interest deduction becomes a smaller and smaller part of your tax bill and you’re likely to have other assets you can use to pay off the mortgage anyway,” Goold said.
Goold warned that NAR’s research also shows that a very large proportion of second-home owners earn between $40,000 and $200,000 per year, so eliminating the deduction could have a much larger impact on middle class individuals than it would on the truly rich—a view also shared by analysts at the National Association of Home Builders.
The complete text of this article can be found in the BNA Daily Tax Report, September 13, 2012. For comprehensive coverage of taxation, pension, budget, and accounting issues, sign up for a free trial or subscribe to the BNA Daily Tax Report today. Learn more »
© 2012, The Bureau of National Affairs, Inc.