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Over the years, however, Congress has pared back interest deductions. The 1986 tax code overhaul eliminated the ability to deduct auto loan and credit card interest.
But lawmakers specifically kept the deduction for home mortgage interest. Then-President Ronald Reagan said he wanted to keep it because it symbolized the American Dream.
Higher taxes for the rich
Taxes will rise for wealthy Americans next year. It’s just a question of how much. › E2
"For people of my generation, the baby boomers, from the time we were kids we were told by the federal government and its policies to build our nest eggs around housing," said Gerald M. Howard, CEO of the National Association of Home Builders, one of the strongest supporters of the deduction.
"Now our elected officials are going to tell us in the name of tax simplification they’re going to further reduce the value of our housing by 10 to 15 percent right as we’re about to retire?" Howard said. "When you make that kind of case to lawmakers, you should see their eyes widen."
But a lot of that concern is based on the misconception that the deduction is a benefit for average Americans, critics said.
"This is a sacred cow to the real estate industry, and it’s almost an entitlement to homeowners," said Anthony Sanders, a real estate finance professor at George Mason University. "They could cut it in half and it would not harm a lot of middle-income households."
An analysis by Congress’ Joint Committee on Taxation found that 78 percent of the $83 billion in mortgage interest deductions in 2010 went to households with income of more than $100,000. Households with incomes of more than $200,000 got 35 percent of the benefit.
The average savings from the mortgage interest deduction was $2,454 in 2010. But for households making more than $200,000, it was $6,370.
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