Hemel and Rozema: Tax Plan Keeps Mortgage and Charitable Deductions, But Eliminates Incentive for Most

Killing Them Softly

The tax blueprint released by the Trump administration in conjunction with congressional Republican leaders on Wednesday says that it “retains tax incentives for home mortgage interest and charitable contributions.” And it is true that, as a formal matter, the deductions for home mortgage interest and charitable contributions would remain on the books under the new plan. However, the vast majority of taxpayers who claim those deductions today would not continue to do so under the Trump plan, and so would lose the tax incentive for mortgage interest payments and charitable contributions. We estimate that only 3% of single taxpayers — and 6% of married couples filing jointly — would receive a tax benefit for home mortgage interest payments under the Trump plan, and a similar proportion of taxpayers would receive a tax benefit for charitable contributions.

At least three factors in the Trump plan would remove or dampen these tax incentives for most taxpayers. First, the plan would raise the standard deduction significantly — from $6,350 to $12,000 for single taxpayers and from $12,700 to $24,000 for married taxpayers filing jointly. A larger standard deduction would lead many taxpayers who currently itemize and thus benefit from the mortgage interest and charitable contributions deduction to claim the standard deduction. In particular, the proposed change means that single taxpayers with less than $12,000 in home mortgage interest payments and charitable contributions (or married taxpayers with less than double that amount) will choose the standard deduction instead of itemizing under the Trump plan because doing so leads to a lower tax bill.

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Tax policy