The sweeping tax reform bill signed into law by President Donald Trump in late 2017 is expected to give corporations a break and take complexity out of the tax code, but the number of homeowners who can claim the mortgage interest deduction is dwindling as a result of the overhaul.
Citing a congressional report by the Joint Committee on Taxation, CNBC reported that the number of homeowners who can claim the mortgage deduction will fall by more than 50% this year. According to the report, around 13.8 million taxpayers will claim the mortgage interest deduction this year. That’s down from 32.3 million in 2017, or a roughly 57% reduction. CNBC noted that the mortgage interest deduction already hadn’t been popular with many homeowners, with just 20% of the 150 million tax returns that the Internal Revenue Service receives each year using the deduction. CNBC cited the Urban Brookings Tax Policy Center for that data point.
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The congressional report said that the anticipated steep decline in homeowners using the deduction is due to the close to doubling of the standard deduction. In order to take advantage of the mortgage interest deduction, taxpayers would have to have deductions that surpass the standard deduction to make it worth it. The standard deduction for married couples filing jointly jumps to $24,000 from $12,700, while for individuals, it increases to $12,000 from $6,350. With fewer people itemizing their tax deductions, the amount of people using the tax break will decline. For 2018, the Joint Committee on Taxation expects 18 million homeowners to itemize deductions, lower than the 46.5 million in 2017.
Also hurting use of the deduction is rising mortgage rates and home values, which could result in fewer home buyers and thus less need for the tax break. Late last week, mortgage rates were marching higher, with the cost to borrow money to purchase a home hitting a new high for the year. According to Freddie Mac, for the week that ended April 19, the average rate for a 30-year fixed-rate mortgage increased five basis points to 4.47%, the highest level since January 2014. Freddie Mac said that this also marks the largest weekly increase since February 2018.
Mortgage rates were pushed higher as Treasury yields increased. “According to the Beige Book, economic activity in March and early April continued to expand at a moderate pace; however, there is concern from various industries surrounding tariffs,” said Freddie Mac in announcing weekly mortgage rates. “Following Treasurys, mortgage rates soared.”