The mortgage interest deduction (MID) has long been a fixture of U.S. tax policy, promoted as a tool to encourage homeownership. However, its relevance and effectiveness are increasingly in question. The 2017 Tax Cuts and Jobs Act (TCJA) sharply curtailed the deduction’s benefits, and with several key provisions set to expire after 2025, the MID’s future is once again up for debate. 

In fiscal year 2024, the Joint Committee on Taxation (JCT) estimates the MID will reduce federal revenues by $25.4 billion, making it one of the largest housing-related tax breaks in the federal code. Only the capital gains exclusion on the sale of a primary residence is larger, projected to cost $38.1 billion. If TCJA provisions expire as scheduled, the cost of the MID could balloon to more than $100 billion by fiscal year 2027. 

Changes Under the TCJA 

The TCJA significantly reshaped the MID. It lowered the cap on mortgage debt eligible for the deduction from $1 million to $750,000 and restricted deductions on home equity debt. It also capped the state and local tax (SALT) deduction at $10,000 and nearly doubled the standard deduction. As a result, far fewer taxpayers now itemize deductions. 

The MID has always been regressive—those with larger mortgages receive larger tax breaks. But post-TCJA, the shift has been dramatic. According to the IRS, just 9.2% of taxpayers itemized deductions in 2021, down from 30.6% in 2017. The remaining MID benefit now largely flows to higher-income households who are more likely to itemize and purchase expensive homes. 

Impact on Homeownership and Housing 

Despite longstanding claims, the MID does little to promote homeownership—especially for first-time buyers. Its primary beneficiaries are higher-income individuals who can already afford to buy homes. It does not address core barriers to ownership like down payments or closing costs. 

Economic research consistently finds that the MID has minimal effect on homeownership rates. Instead, its main impact has been to inflate home prices, as its value is capitalized into housing costs. With fewer taxpayers claiming the deduction after TCJA, that price effect has diminished and is now difficult to detect. 

What Happens Next? 

If Congress allows the TCJA provisions to expire, the MID will revert to its pre-2018 form: deductibility on up to $1 million in mortgage debt and $100,000 in home equity debt—regardless of how the funds were used. 

That gives lawmakers several paths forward. They could extend the TCJA changes, scale back the deduction further, replace it with a more equitable tax credit, or eliminate it altogether. A credit could benefit a broader range of homeowners, including those who don’t itemize. And given the MID’s limited impact and growing cost, scrapping it entirely is no longer a fringe idea. 

With budgetary pressures mounting, the mortgage interest deduction looks increasingly like a luxury the government can’t justify. Reforming or eliminating the MID could be an important step toward a fairer, more fiscally responsible tax code.