Only a small percentage of U.S. taxpayers benefit from the ability to deduct mortgage interest on a second home. That group just happens to include many of the people who craft the nation’s tax laws.
Members of the congressional tax-writing committees are eight times more likely than the average American to own a second home with a mortgage, casting doubt on their eagerness to curb the tax break, according to data compiled by Bloomberg.
U.S. lawmakers are an ideal market for second homes: They’re wealthier than the typical person and they live and work in two places -- their home states and Washington. That will shape their approach to revising the tax code, said Bill Allison, editorial director of the Sunlight Foundation in Washington, which promotes government transparency.
“What you end up seeing out of Washington is a real disconnect between how Congress lives in Washington as one of the most affluent areas now, and how the rest of the country lives,” Allison said.
The Senate Finance and House Ways and Means committees are exploring the first rewrite of the U.S. tax code since 1986, and the chairmen of both panels have promised to scrutinize every tax break. That examination will include the estimated $8 billion a year that the second-home mortgage deduction costs, as lawmakers try to lower marginal rates.
The lawmakers will start that process coming from a different financial place than many of their constituents. More than 40 percent of members of the House Ways and Means and Senate Finance committees have mortgages on homes other than their primary home-state residences.
Examples are Finance Chairman Max Baucus’s Capitol Hill townhouse, Representative Tom Reed’s cottage on Keuka Lake in upstate New York and Representative Sander Levin’s home on Martha’s Vineyard.
About 5 percent of all homes in the U.S. are second residences, according to the National Association of Home Builders.
“We’re like millions of Americans,” said Reed, a 41-year- old New York Republican. “I have been very sensitive to recognizing mortgage deduction as a policy, a good real estate policy for America. It doesn’t sway me from a personal perspective. It’s about good policy.”
Reed said he and his 11 siblings inherited the lake cottage in his district from his mother. That arrangement didn’t work well, and he borrowed money to buy them out. He now owes between $100,000 and $250,000 on the cottage and between $50,000 and $100,000 on his primary home in Corning, where he was mayor before coming to Congress in 2010.
“This longstanding tradition is something that if we move away from we should do it very carefully,” he said. “And we should do it in a very well-thought-out manner.”
The mortgage-interest deduction, with an estimated cost of $72 billion in forgone revenue in 2014, is one of the largest tax breaks in the Internal Revenue Code and the subject of a real-estate industry lobbying campaign to protect it.
Taxpayers can deduct interest on mortgages of up to $1.1 million on as many as two homes, a “main home” where they live most of the time and a second home. At least for voting purposes, lawmakers declare their primary residences in their home states. A rule that would constrain the deduction to primary residences would limit the break.