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Capping the Mortgage Interest Deduction

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  • Anderson, John E.
  • Clemens, Jeffrey
  • Hanson, Andrew

Abstract

In this paper we examine the economic implications of several policy options for capping the mortgage interest deduction (MID). We extend the standard user–cost model of owner–occupied housing to include a cap on the mortgage size receiving tax–favored status. Our user–cost estimates for taxpayers with mortgages above the current–law cap are 4.41 percent higher than estimates from a model without the cap. We simulate the share of mortgage dollars that would be subject to three alternative cap policy variants and summarize the distributional impacts of each proposal, computing the share of mortgage dollars impacted across U.S. Metropolitan Areas.

Suggested Citation

  • Anderson, John E. & Clemens, Jeffrey & Hanson, Andrew, 2007. "Capping the Mortgage Interest Deduction," National Tax Journal, National Tax Association;National Tax Journal, vol. 60(4), pages 769-785, December.
    • Handle: RePEc:ntj:journl:v:60:y:2007:i:4:p:769-85
    DOI: 10.17310/ntj.2007.4.05
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    Cited by:

    1. Patacchini, Eleonora & Venanzoni, Giuseppe, 2014. "Peer effects in the demand for housing quality," Journal of Urban Economics, Elsevier, vol. 83(C), pages 6-17.
    2. Hal Martin, 2018. "The Impact of the Tax Cuts and Jobs Act on Local Home Values," Working Papers (Old Series) 1806, Federal Reserve Bank of Cleveland.
    3. David Albouy & Andrew Hanson, 2014. "Are Houses Too Big or In the Wrong Place? Tax Benefits to Housing and Inefficiencies in Location and Consumption," Tax Policy and the Economy, University of Chicago Press, vol. 28(1), pages 63-96.
    4. Greenhalgh-Stanley, Nadia, 2012. "Medicaid and the housing and asset decisions of the elderly: Evidence from estate recovery programs," Journal of Urban Economics, Elsevier, vol. 72(2), pages 210-224.
    5. Andrew Hanson, 2012. "The Incidence of the Mortgage Interest Deduction: Evidence from the Market for Home Purchase Loans," Public Finance Review, , vol. 40(3), pages 339-359, May.
    6. Kelly Edmiston & Kenneth Spong, 2012. "Promoting Wealth Building through Homeownership," NFI Working Papers 2012-WP-04, Indiana State University, Scott College of Business, Networks Financial Institute.
    7. James M. Poterba & Todd M. Sinai, 2008. "Income Tax Provisions Affecting Owner-Occupied Housing: Revenue Costs and Incentive Effects," NBER Working Papers 14253, National Bureau of Economic Research, Inc.
    8. Serena Fatica & Doris Prammer, 2018. "Housing and the Tax System: How Large Are the Distortions in the Euro Area?," Fiscal Studies, John Wiley & Sons, vol. 39(2), pages 299-342, June.
    9. Cole, Adam J. & Gee, Geoffrey & Turner, Nicholas, 2011. "The Distributional and Revenue Consequences of Reforming the Mortgage Interest Deduction," National Tax Journal, National Tax Association;National Tax Journal, vol. 64(4), pages 977-1000, December.
    10. Poterba, James M. & Sinai, Todd, 2011. "Revenue Costs and Incentive Effects of the Mortgage Interest Deduction for Owner-Occupied Housing," National Tax Journal, National Tax Association;National Tax Journal, vol. 64(2), pages 531-564, June.
    11. Hanson, Andrew, 2020. "Taxes and Borrower Behavior: Evidence from the Mortgage Interest Deductibility Limit," Journal of Urban Economics, Elsevier, vol. 118(C).
    12. Donald Bruce & Lawrence M. Kessler, 2022. "A SALT on Real Estate? Housing Market and Migration Responses to the Limit on the State and Local Tax Deduction," Working Papers 2022-01, University of Tennessee, Department of Economics.
    13. Andrew Hanson & Hal Martin, 2014. "Housing Market Distortions and the Mortgage Interest Deduction," Public Finance Review, , vol. 42(5), pages 582-607, September.
    14. Ran Tao & Jiayue Chai & Bikash Koli Dey, 2022. "A Three-Stage Game Analysis of Private Lending Rate Ceiling: Necessity, Impact, and Solution," Advances in Operations Research, Hindawi, vol. 2022, pages 1-9, August.
    15. Brian J. McCabe, 2018. "Costly, Regressive, and Ineffective: How Sensitive Is Public Support for the Mortgage Interest Deduction in the United States?," Housing Policy Debate, Taylor & Francis Journals, vol. 28(6), pages 963-978, November.
    16. Hanson, Andrew, 2012. "Size of home, homeownership, and the mortgage interest deduction," Journal of Housing Economics, Elsevier, vol. 21(3), pages 195-210.

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