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Tax deductions on mortgage interest rate

Holiday decorations are visible in windows of a home in the Ironwood subdivision on Nov. 24. The subdivision has a number of higher-end homes which may be affected by a proposed tax change that caps deductions on mortgage interest rate.

CASEY PAGE, Gazette Staff

On cable news, they called House Republican plans to cap mortgage interest rate deductions a blue-state tax, which seemed to make sense.

Coastal communities not only vote Democratic, but also have pricey homes and mortgages to match. Consider Los Angeles, where the real estate website puts the median home listing price at $635,000; or Seattle at $722,000; or the Jersey City waterfront at $764,000.

Deducting the interest on that home debt is pretty popular on the coast. Lowering the deduction cap from $1 million to $500,000 on new homes wasn't well received. The move prompted the real estate and homebuilders' lobbies to back away from Congressional Republican proposals for sweeping tax reform.

The rest of the United States, the inland area known as flyover country, wouldn’t be affected, right? Not exactly, reports Montana’s Department of Revenue. Counties like Gallatin, Flathead and even Yellowstone have more than a few residents with mortgages of $500,000 or more.

Montana’s Association of Realtors worries that tampering with the interest rate deduction could affect home sales.

“I know for a fact that all the Big Sky properties, and many homes in Bozeman and the surrounding area are in that category,” said Rich Mayo, the president of the Montana Association of Realtors and a broker for RCI Realty in Bozeman.

Montana taxpayers claiming a mortgage interest rate deduction of at least $15,000 by county

The map above shows the number of taxpayers in each Montana county who claimed a mortgage interest rate deduction of at least $15,000, meaning their homes are mortgaged at $500,000 or more. Counties with fewer than 10 such homes are not colored. Source: Montana Department of Revenue

Mayo said his state group’s position on capping the mortgage interest deduction mirrors the National Association of Realtors position, which is that deduction is a tool that helps homeownership. In Montana, 102,640 property owners have claimed the interest rate deduction, with an average tax savings of $1,890. The data comes from the Internal Revenue Service’s 2015 tax statistics and is compiled by NAR.

The Senate, in its tax reform package, left the deduction alone. 

Most of those interest deductions associated with Montana properties are from mortgages for less than $500,000. That average interest deducted from taxable income is $7,559.


Holiday decorations are visible on the porch of a home in the Ironwood subdivision on Nov. 24. Last year, 781 claims for an interest tax deduction on a mortgage of $500,000 or greater in Yellowstone County were made.

The interest deducted from a $500,000 mortgage would be about $15,000. Those mortgages number 5,436; according to Montana’s Department of Revenue, they’re mostly located in about five Montana counties. The numbers were calculated by DOR economist Aaron McNay.

Gallatin County has the most holders of $500,000-plus mortgages claiming the deduction, which is used for primary or secondary homes. There are 1,034 filers fitting the bill in Gallatin County, which isn’t to say there are only a thousand homes in the community worth a half-million or more.

Not everyone uses the mortgage interest deduction. Not everyone with a half-million-dollar home has a mortgage.

Flathead County had 865 people with mortgages of $500,000 or more who used the deduction last year. Yellowstone County had the third-most deduction claimants with 781, followed by Missoula County with 723.

After Missoula County, the number of claimants drops significantly. Lewis and Clark and Ravalli counties each had 297 people using the deduction for a mortgage of $500,000 or more. Silver Bow County had 66.


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