With all the talk and activity in Washington, D.C., these days around issues like tax reform, I thought it might be interesting to look into the subject of the mortgage interest deduction. What was its origin, how is it used, and what is its future?
Federal income tax in the United States was first implemented in 1894, and all forms of interest on loans were deductible. Interestingly, the U.S. Supreme Court quickly ruled income taxes unconstitutional and it wasn’t until 1913 that Congress enacted a new income tax, after the Constitution was amended, and as part of this new tax interest was again deductible. In the early years of the tax code, it was safe to presume that Congress wasn’t thinking about mortgage interest deductibility, as homes in those days were generally bought for cash. Presumably, lawmakers were more concerned with mortgages on farms and business loans.