U.s. Tax Legislation For Homeownership

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Homeownership has long been a highly valued feature of a strong and wealthy economy and policy-makers in the United States receive a lot of support in developing policies that promote homeownership. The U.S. tax structure and many federally sponsored state and local programs provide benefits to homeownership and seek to increase ownership among disadvantaged groups, respectively. One feature of the federal tax code is mortgage interest deductions. Mortgage interest deductions are a costly but very popular tax deduction that is argued to have contributed to the housing bubble. From 1913, when income tax was introduced, to 1986, when Congress passed the Tax Relief Act of 1986, tax payers deducted all personal interest (Morrow,2012). The Tax Relief act phased this out with the exception of mortgage interest because Congress wanted to promote homeownership. The deduction does not have to be used on someone’s primary home and can be used on up to two homes. The mortgage must be secured by a home and the mortgage must be recorded. For interest to be deductible it must be either grandfathered-in mortgage debt (incurred before October 1987), debt incurred to either buy, build, or improve a home- up to $1 million, or other debt secured by a home up that can be used for any purpose- up to $100,000. The amount of the deduction is the amount of mortgage interest paid in that year multiplied by the taxpayer’s marginal tax rate (Morrow,2012). But the deduction is only useful for people
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