United States: Paper Shows Who Benefits From US Mortgage Tax Deductions
30 August 2013
Posted by: Author: Mike Godfrey
Author: Mike Godfrey
A paper from the Tax Policy Center (TPC) has pointed out how the benefits of United States itemized tax deductions for mortgage interest and property taxes vary by income and demographic characteristics.
Homeowners will benefit from those two itemized deductions for owner-occupied housing in a total amount of USD96.7bn in 2013, according to a Joint Committee on Taxation estimate. However, the TPC has found that deductions increase after-tax income most for high-income families, particularly those with children, while low-income households hardly benefit at all.
Firstly, it sees that the tax expenditures for owner-occupied housing favor high-income households, because high-income taxpayers are more likely to own their homes, they are more likely to itemize and therefore to benefit from the deductions (78 percent of households in the top quintile itemize, compared with only 22 percent of middle-income household and just 1 percent of those in the bottom quintile), and each dollar deducted reduces taxes more for households in higher tax brackets.
Secondly, the TPC notes that the benefits of tax expenditures for homeownership also vary by age and family structure. Older homeowners, especially those with relatively low income, benefit less from the deductions because they carry less mortgage debt and often receive preferential property tax relief, while families with children have higher rates of homeownership and thus benefit more from the deductions.
Therefore, within each income quintile, the TPC finds that families with children experience the largest income boost, while elderly households benefit the least, and it concludes that "income and demographic characteristics combine to determine the benefits of deductions for homeownership costs."