The federal tax law encourages homeownership in a big way by allowing homeowners to deduct from their income taxes the interest they pay on home mortgages. The deduction may be used for mortgage debt totaling $1 million, and up to $100,000 in home-equity loans or lines of credit, for a principal and second home. One study estimates that the mortgage interest deduction lowers the cost of capital for owner-occupied housing by 7 percent. Also, by allowing taxpayers to deduct mortgage interest from their taxable income, but not rental payments, the tax code creates a strong financial incentive to buy rather than rent a home. In 2009, about 35 million households claimed the deduction, and more than 75 percent of homeowners have used the deduction at least once. As you might expect, ...
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