Will Tax Reform Cut the Mortgage Interest Deduction?

In the House version of the Tax Cuts and Jobs Act, the mortgage interest deduction would be limited to $500,000 in total principal, which is half of the current limit. Here's why this could affect many middle-class households all over the country.

A full transcript follows the video.

10 stocks we like better than Wal-MartWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, the Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Wal-Mart wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of November 6, 2017The author(s) may have a position in any stocks mentioned.

This video was recorded on Nov. 20, 2017.

Michael Douglass: The other piece, though, and this is sort of on the flip side, is that the mortgage interest deduction is actually reduced in the House bill. Let's talk about that a little bit.

Matt Frankel: This could affect people differently depending on where they live. If you live in an area where the cost of living is high, the new mortgage deduction will be capped at $500,000 of initial mortgage debt. So, in a higher-cost area, like where Michael is right now...

Douglass: [laughs] The D.C. area.

Frankel: ... $500,000 is a middle-class house. That's not rich people. Whereas, in certain parts of the country, like South Carolina where I'm calling in from, a $500,000 house is the top few percent. So this is not necessarily a cut, but it could disproportionately affect people depending on where they live. And it could have an unintended effect of reducing the amount of deductions for certain middle-class households in places like Washington D.C., New York, New Jersey, certain parts of California. The Senate's bill keeps the maximum deduction at the same $1 million mortgage debt cap, which pretty much includes middle class houses all over the country. Maybe there's a few exceptions.

Douglass: Yeah, but I have a hard time thinking of a house that cost $1 million that's completely middle class. At that point, I think we can probably all agree that that family is doing just fine.

Frankel: Right. But $500,000 doesn't really go that far where you are.

Douglass: No. No, it doesn't. [laughs] And while I am a recent homeowner -- and thank you, by the way, to the folks who sent congratulatory or encouraging emails -- my house did not cost nearly $1 million.

The Motley Fool has a disclosure policy.