But don’t touch the interest deduction for mortgage on principle residence
Oregon Legislators are considering changing residential interest deduction. HB 2006 would:
- cap the state mortgage interest deduction at $15,000
- eliminate the deduction for homeowners earning over $100,000 a year or $200,000 if filing jointly.
- Eliminate the deduction paid on mortgages for second homes and vacation rentals
Forget the Caps
The $15,000 cap on the deduction and eliminating it for high earners are questionable policy, and have zero chance of passage anyway. But the elimination of interest deduction for second homes makes sense.
Eliminate Second Home Deduction will make housing more affordable
It’s extremely unlikely that the decision to buy a second or vacation home is based on whether one can write off the interest on your Oregon taxes. Even at the highest Oregon Tax rate, the savings are negligible in comparison with the cost of home ownership.
But, eliminating the interest deduction for second homes will have a positive impact on people who live in vacation destinations like Bend, Hood River and the Oregon Coast.
Those towns are seeing significant home price increases and not the least because of competition for homes between local residents and vacation/second home buyers. Eliminating the tax deduction for second home buyers will make homes, after tax, more expensive for second home hunters, and local residents looking for their first home will have a financial competitive edge.
Eliminating the second home mortgage deduction will be difficult. Realtors, builders, and banks like rising home prices, so they love the mortgage interest tax deduction because it makes more expensive homes more “affordable” when considering a buyers net, after tax ability to pay. And what realtor doesn’t like 6% of$500,000 more than 6% of $425,000? And banks like increasing home prices because it makes their loans safer.
It’s called the “Home” mortgage interest deduction, not the “Homes” mortgage interest deduction. Eliminate this unnecessary tax break to people who don’t need it and don’t rely on it. And make home ownership more affordable for local residents, many of whom are in the service field, so they can own homes where they live and where they work and achieve at least part of their American dream.