Audit finds Oregon’s mortgage interest deduction is ‘deeply inequitable and regressive’

SALEM, Ore. (KGW) — Oregon’s mortgage interest deduction is inequitable and regressive, mostly benefitting wealthy and white homeowners in the state’s urban counties, according to an audit from the office of Secretary of State Shemia Fagan.

The deduction allows some homeowners to reduce their taxable income by the amount of interest paid on mortgages up to $750,000, including on vacation homes.

The subsidy is expected to cost the state more than $1.1 billion in foregone tax revenue in the current biennium, Fagan’s office said in a press release. The law allowing the deduction has been in place since 1923 but has never before been audited, according to Fagan’s office.

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“The affordable housing crisis is squeezing families across Oregon while the state’s largest spending on housing primarily flows to wealthy homeowners in the metro area. That is indefensible,” Fagan said in a statement. “Every dollar spent keeping seniors and working families in their homes or helping renters stay housed has been scrutinized and debated by lawmakers. Meanwhile billions of dollars just walk out the backdoor with no questions asked. I can’t think of a worse example of waste and systemic inequality than that.”

The audit found that the top 1% of income earners received more benefit from the policy than the bottom 40%, and that a disproportionate share of the benefits go to Multnomah, Washington, Clackamas, Columbia, Yamhill and Deschutes counties. Black, Latino and Native American residents also benefit less than white residents.

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The policy also lacks a clear state-level purpose and method to evaluate whether it’s serving that purpose, according to the audit, with no clear evidence that the original intent of the policy was to promote homeownership.

The audit recommends that the Oregon Legislature identify a clear purpose for the deduction and determine if changes are necessary to make sure it’s achieving that purpose.

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