Congress should adopt mortgage interest tax credit: CHLA

The Community Home Lenders of America (CHLA) is calling on both houses of Congress to adopt a mortgage interest credit as the 2017 Tax Cuts and Jobs Act (TCJA) is currently set to expire in 2025. This is according to a letter the organization submitted to leaders in both the U.S. House of Representatives and the U.S. Senate.

In the lead-up to its 2017 passage, CHLA representatives “aggressively advocated for a Mortgage Interest Credit (MIC) during debate on the 2017 tax bill, when it became clear the value of the mortgage interest deduction would be diminished,” the organization said.

Among the provisions established by the TCJA was a mortgage interest deduction for primary residences and second homes. The eligible deduction was lowered from total mortgage balances of $1 million under prior law to $750,000. The 2017 law also made interest from home equity loans non-deductible except for when the money is applied to home improvements or renovations.

But the TCJA also “raised the standard deduction for married filers from $12,700 to $24,000 (or $29,200 in 2024) and from $6,350 to $12,000 ($14,600 in 2024) for single filers,” the CHLA pointed out. The TCJA also “capped the maximum allowable state and local tax deduction at $10,000 (the so-called SALT cap),” which it said “all but eliminated tax benefits for property taxes on a home.”

The combined effects of these two changes “significantly reduced the value (tax benefits) of the mortgage interest deduction, since significantly fewer taxpayers now use itemized deductions,” the letter stated. Congress’ Joint Committee on Taxation estimated the annual tax benefit value for the mortgage interest deduction fell from $64.6 billion in 2017 — which would’ve exceeded $100 billion in 2024 had the tax law never been adopted — to $31 billion in 2023, the organization explained.

“Assuming Congress retains a higher standard deduction and a SALT cap, it should restore the lost tax benefits related to mortgage interest by creating a targeted Mortgage Interest Credit (MIC),” CHLA said.

A mortgage interest credit could be targeted to maximize homeownership benefits by applying only to first-time homebuyers; by being capped and phased out by adjustable gross income; by being refundable; and by distributing tax benefits “more equitably regardless of income bracket through a tax credit,” CHLA argued.

CHLA pointed out that the National Low Income Housing Coalition (NLIHC) also supported a  mortgage interest credit in 2017, and that three separate bipartisan commissions have proposed a mortgage interest tax credit based on a November 2023 paper published by the Bipartisan Policy Center.