Policy Documents

Capping the Mortgage Interest Deduction

John E. Anderson, Jeffrey Clemens and Andrew Hanson –
August 1, 2007

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.