Is the Mortgage Interest Deduction at Risk? What You Need to Know About the Tax Cuts and Jobs Act

Homeowners across the country are asking a critical question: Will the mortgage interest deduction expire if the Tax Cuts and Jobs Act (TCJA) sunsets? This popular tax benefit has been a cornerstone of American homeownership for decades, but its future hangs in the balance as the TCJA's provisions approach their expiration date. Let’s dive into what’s at stake and what homeowners should prepare for.

What Is the Mortgage Interest Deduction?

The mortgage interest deduction allows homeowners to deduct the interest paid on their home loans from their taxable income. For many, this deduction has made homeownership more affordable by reducing their overall tax burden. However, changes brought by the TCJA have already altered how this deduction works, and its future remains uncertain.

How Did the TCJA Change the Deduction?

When the TCJA was enacted in 2017, it made significant changes to the mortgage interest deduction:

• Lowered the cap: The deduction was capped for mortgages up to $750,000 (down from $1 million).
• Eliminated deductions for home equity loans: Unless the funds were used for home improvements, interest on home equity loans was no longer deductible.
• Increased the standard deduction: Many homeowners found it more beneficial to take the standard deduction rather than itemizing, reducing the impact of the mortgage interest deduction.

What Happens If the TCJA Expires?

The TCJA is set to expire at the end of 2025 unless Congress takes action to extend or modify it. If it sunsets, here’s what could happen:

1. Pre-TCJA rules would return: The mortgage interest deduction cap would revert to $1 million, and home equity loan interest could once again be deductible.
2. Tax rates could rise: The TCJA also lowered individual tax rates, so its expiration could mean higher taxes for many homeowners.
3. Confusion and uncertainty: Homebuyers and current homeowners may face a period of uncertainty as they adjust to the new (or old) rules.

What Should Homeowners Do Now?

While the future of the mortgage interest deduction is unclear, homeowners can take steps to prepare:

• Stay informed: Keep an eye on legislative developments as 2025 approaches.
• Consult a tax professional: A financial advisor or tax expert can help you understand how potential changes might affect you.
• Consider refinancing: If interest rates remain favorable, refinancing could lock in lower rates and reduce your overall interest payments.

The Bigger Picture: Housing Market Implications

The mortgage interest deduction isn’t just a tax issue—it’s a housing market issue. If the deduction is significantly altered or eliminated, it could impact:

• Home prices: Reduced tax benefits might make homeownership less attractive, potentially cooling demand.
• First-time buyers: Younger buyers or those with tighter budgets might find it harder to justify purchasing a home.
• Rental markets: A shift away from homeownership could increase demand for rental properties.

What Do You Think?

The future of the mortgage interest deduction is a hot topic with far-reaching implications. Here are some questions to consider:

• Should the government prioritize tax benefits for homeowners, or is it time to shift focus to renters?
• Would the expiration of the TCJA hurt the housing market, or could it lead to a more balanced economy?
• Is the mortgage interest deduction still relevant in today’s economy, or is it an outdated policy?
• How might changes to the deduction impact your decision to buy or sell a home?

We’d love to hear your thoughts. Share your opinions in the comments below or join the conversation on social media using #BNN.