Recently, Congress has passed legislation lowering the mortgage interest deduction limit from $1,000,000 to $750,000. A. What...

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Finance

Recently, Congress has passed legislation lowering the mortgageinterest deduction limit from $1,000,000 to $750,000.
A. What is the mortgage interest deduction?Which types of mortgage borrowers benefit most from it, andwhy?
B. The mortgage interest deduction is oftencriticized by economists and others. What are some of the keyproblems or issues which are highlighted by these critics? Can youthink of any counterarguments?
C. Thinking about the user cost model westudied in class, what effect would cutting or eliminating themortgage interest deduction have on the cap rate for residentialreal estate. Would this effect be larger when interest rates arelow or when rates are high? Explain.

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A What is the mortgage interest deduction Which types of mortgage borrowers benefit most from it and why The mortgage interest tax deduction was introduced in 1913 It has survived numerous tax reforms because of the incentive the tax provides for renters to buy homes The federal tax system offers a number of ways to promote homeownership including the mortgage interest deduction perhaps the most prominent among them Heres how it works and who benefits First off only taxpayers who itemize their deductions can take it so long as they tally more than the standard deduction currently US12600 for a married couple If youve met that threshold then your benefit from the interest deduction will depend on how much greater it is than the standard deduction and what your marginal tax rate is A higher rate will lead to greater tax savings For example lets imagine three couples filing jointly in 2019 Couple A has a modest income of 50000 and pays 7300 a year in interest but has only 4000 in other expenses that can be itemized This couple would have chosen the standard deduction and received no benefit from the mortgage interest it paid Couple B has the same mortgage but earns See Answer

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