Senate tax bill breaks with House over mortgage interest deduction

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WASHINGTON — The Senate tax proposal released Thursday would cap the mortgage interest deduction for properties worth $1 million, a reversal from the House plan that would have limited the deduction to $500,000.

The reversal would reduce revenue from tax reform, but could also alleviate concerns for lawmakers in states with high-priced homes.

Still, powerful housing trade groups, including the National Association of Realtors and the National Association of Home Builders, may continue to oppose the plan because the Senate bill would double the standard deduction, making the mortgage interest deduction less valuable.

The Joint Committee on Taxation estimated that the House plan, which capped the mortgage interest deduction at $500,000 and eliminated a number of deductions, would have raised $1.253 trillion in revenue.

The taxation committee "does not identify the savings just from capping the [mortgage interest deduction] but we assume the cap on the [mortgage interest deduction] is a material portion of the $1.253 trillion,” Brian Gardner, an analyst at KBW, wrote in a note to clients.

“If the cap on the [mortgage interest deduction] is raised (or other adjustments are made), we think lawmakers will turn to other areas for pay-fors,” added Gardner, who noted that tax writers could lean on banks to raise additional revenue.

The Senate plan also differs from the House plan in that it preserves low-income housing credits to encourage businesses to invest in affordable housing.

House and Senate Republicans are attempting to pass the tax reform using a legislative procedure called reconciliation which would allow them to pass the legislation without support from Democrats. However, the measure includes a number of parameters that tax writers will have to meet in order for it to fit under the reconciliation rules, limiting what can be done.

Senate Finance Committee Chairman Orrin Hatch, R-Utah, said in a floor statement that he expects it to be a largely partisan proposal, but that he is still open to working with Democrats.

“I expect we will hear some negative comments from our friends on the other side of the aisle soon enough,” Hatch said. “I haven’t refused to listen to anyone’s ideas or suggestions and I continue to say it with conviction that I am still willing to have them on board and hope that they will be willing to get on board and join us in this effort.”

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Mortgage interest deduction Tax reform Trump tax plan