Vanderbilt Law Review


J. B. McCombs

First Page



By enacting a $1 million debt limit for deductible home mortgage interest in 1987,' Congress opened the way for a fresh inquiry into the home property tax deduction. Adoption of that debt limit reflects a major change in policy-a re-evaluation of the benefits and costs of subsidies to luxury housing.

At first glance a $1 million limit seems ridiculously high if the debt ceiling reflects a decision to stop subsidizing luxury housing. The debt ceiling, however, does not contain an inflation adjustment provision. Because such provisions are common in the Internal Revenue Code, the absence here must be by conscious design. Political pressures no doubt required a debt ceiling to debut at a token level and slowly grow by inflation into a meaningful limit. Already, inflation has achieved a significant step that Congress apparently wanted but lacked the courage to take.

This change in policy calls for a re-evaluation of the property tax deduction. In general, mortgage interest and property tax on a principal residences are economically analogous costs of purchasing a home. Neither is appropriately deductible as a matter of defining net income, but both are deductible as concessions based on nontax policy. If deduction of home mortgage interest is to be limited, consistency requires that deduction of home property tax also be limited.

This Article develops a proposal to limit the federal income tax deduction for home property tax. Under the proposal, no more than $5000 of property tax on a principal residence will be deductible, and no deduction will be allowed to any taxpayer with adjusted gross income (AGI) greater than $250,000. The Article determines that a theoretically pure definition of taxable income would not allow any deduction for home property tax payments, but that certain social policies are furthered by the deduction. Analysis of those social policies reveals that they can be fulfilled by a limited deduction, thereby reducing the cost and increasing the cost efficiency of promoting such policies.