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Options to Reform the Deduction for Home Mortgage Interest

Daniel Baneman, Hang Nguyen, Jeff Rohaly, Eric Toder

Published: August 16, 2011
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Currently, taxpayers can deduct interest on up to $1 million in acquisition debt used to buy, build, or improve their primary residence or a second designated residence. In addition, taxpayers can deduct interest on up to $100,000 in home equity loans or other loans secured by their properties regardless of the loans’ purpose. We consider a proposal that would limit the amount of deductible interest to the amount incurred on the first $500,000 of debt on a primary residence only, and would replace the itemized deduction with a nonrefundable tax credit equal to 15 percent of eligible home mortgage interest.