Who Receives Homeownership Tax Deductions and How Much?

Who Receives HomeownershipTax Deductions and How Much?By Adam CarassoSome of the costliest tax expenditures the federalgovernment allows go to subsidizing homeownership.According to estimates by the Joint Committee on Taxa-tion for fiscal 2004, the total tax expenditure value of themortgage interest deduction was $70.2 billion while thevalue for the real estate tax deduction was $19.3 billion.The charts below show that federal tax subsidies forhomeownership disproportionately go to taxpayers inupper-income brackets. The top chart shows the distri-bution of total tax expenditures for the mortgage interestand real estate tax deductions by income class. Fifty-fourpercent of those tax expenditures went to taxpayers withincomes exceeding $100,000 and 72 percent went totaxpayers with incomes exceeding $75,000. The bottomchart shows the average tax expenditure per tax return.Taxpayers with incomes between $0 and $75,000 seeaverage subsidies ranging from $400 to $1,500. However,taxpayers with income above$75,000 enjoy much larger av-erage subsides, reflectinghigher average home valuesand rates of homeownership.Very few taxpayers receivethose two subsidies at lowincomes — as most low-income tax return filers owelittle tax, do not itemize, andare less likely than taxpayersin other groups to own ahome — and very many tax-payers receive them at higherincomes. When these housingtax expenditures are com-pared alongside overall tax li-ability by income class (notshown), however, middle-income households are likelyto gain more on net than thewell-off.Not included here are thesubstantial exclusions of netimputed rental income orcapital gains on sales of prin-cipal residences, although thedistribution of those tax ex-penditures follows a roughlysimilar pattern. Some very-low-income households doreceive generous housingsubsidies from federal spend-ing programs, but those sub-sidies encourage renting andnot owning.Distribution of Total and Average Tax ExpendituresFor the Mortgage Interest and Real Estate Tax DeductionsBy Income Class FY 2004Total Tax Expenditure$ Billions$35$30$25$20$15$10$5$0Below$10K$10K -$20K$20K -$30K$30K -$40K$40K -$50K$50K -$75K$75K -$100K$100K -$200KAbove$200KMortgage Tax DeductionReal Estate Tax DeductionTax Expenditure Per Return$ Thousands$10$8$6$4$2$0Below$10K$10K -$20K$20K -$30K$30K -$40K$40K -$50K$50K -$75K$75K -$100K$100K -$200KAbove$200KSource:The Urban Institute, 2005. Based on data from the Joint Committeeon Taxation, “Taxation of Federal Tax Expenditures for Fiscal 2005-2009,”Jan. 12, 2005, Table 3.from the Tax Policy CenterTAX NOTES, August 1, 2005591(C) Tax Analysts 2005. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.