Disallows, for purposes of personal income taxation, a mortgage interest deduction for a residence other than the taxpayer's principal residence, unless the taxpayer sells the residence or actively markets the residence for sale.
Summary
HB 4136 changes Oregon personal income tax law by limiting the mortgage interest deduction for a residence that is not the taxpayer’s principal residence. Under the bill, interest on a second home or other non-primary residence would generally no longer be deductible for Oregon income tax purposes, unless the taxpayer sells the residence or is actively marketing it for sale. The measure applies to tax years beginning on or after January 1, 2026.
The bill also creates the Oregon Homeownership Opportunity Account in the State Treasury. Beginning in 2028, the Department of Revenue must estimate the additional personal income tax revenue generated by the deduction restriction and transfer that amount to the Oregon Housing Fund for deposit into the new account. Those moneys are continuously appropriated to the Housing and Community Services Department and may be used only for down payment assistance through homeownership programs or nonprofit organizations.
Impact
HB 4136 would amend ORS 316.695 to exclude mortgage interest on non-principal residences from Oregon itemized deductions, with a narrow exception for taxpayers who are selling or actively marketing the residence. This would increase taxable income for some taxpayers who own second homes, vacation homes, or other non-primary residences, while preserving the deduction in limited transition circumstances. The bill also creates a dedicated housing account and directs estimated revenue gains from the tax change to down payment assistance, affecting both the tax code and housing finance administration.
Sentiment
Based on the bill text and available context, the measure appears to be framed as a housing-affordability and homeownership policy rather than a broad tax increase. The sponsorship lineup suggests support from a coalition of legislators, and the bill’s structure indicates an intent to redirect tax benefits away from second-home ownership and toward first-time or lower-barrier homeownership assistance. However, there is no recorded committee testimony or vote history in the provided materials, so the level of support or opposition cannot be measured from debate records.
Contention
The main policy tension is between limiting a tax preference for owners of second homes and preserving tax benefits for homeowners who may be in the process of selling a former principal residence. Potential critics would likely focus on the bill’s impact on taxpayers with vacation homes, inherited homes, or temporary dual-residence situations, and on whether the revenue estimate and transfer mechanism are sufficiently precise. Supporters would likely emphasize the equity rationale: reducing a tax subsidy for non-primary residences and using the resulting revenue for down payment assistance to help more Oregonians buy homes.