LAUSR

The US mortgage interest deduction (MID) allows homeowners to deduct the interest paid on their mortgages from their federal tax returns, provided that they itemize deductions. Since the benefit depends on a taxpayer’s marginal tax rate, which increases with income, the MID is an “upside-down subsidy” that becomes more valuable for higher-income homeowners. I analyze the implications of converting the US MID to a mortgage interest credit (MIC) and evaluate the effects on federal revenue and the distribution of income. I argue that a MIC could be better targeted at low- and middle-income taxpayers on the margin of homeownership while also being more progressive and less expensive than the current MID.