Is Sharif's Castle Deductible?: Islam and the Tax Treatment of Mortgage Debt

Abstract:     
This article examines the tax treatment of Islamic mortgage alternatives and considers the cultural and constitutional implications of the tax treatment of mortgage debt. Islamic law cannot be separated from the religion of Islam, and one of the primary tenets of Islamic law is the prohibition of riba, which is defined by some Islamic jurists as the payment of interest on any loan. Financing institutions, working with Muslim religious leaders, have developed a number of financing instruments that do not violate the prohibition against riba, thus facilitating home ownership for those Muslims who do not feel comfortable with a traditional mortgage. This article considers whether payments under such instruments should qualify for the home mortgage interest deduction and the potential consequences of either permitting or denying a deduction for such payments. I will discuss the constitutional implications of denying a tax deduction and administrative and regulatory options to accommodate tax deduction of payments under Muslim mortgage alternatives. Finally, I conclude that the issue of religious discrimination in the tax treatment of housing should motivate remodeling the home mortgage interest deduction.

Number of Pages in PDF File: 32

Keywords: taxation, religion, Islam

JEL Classification: H24, K34, N20

Accepted Paper Series