Do Mortgage Deductions Encourage Home Ownership?

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Deductions Largely Benefit High-Income Buyers: NCPA Report

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Mortgage-related deductions could be tailored to reduce the cost of home ownership for families in the lowest income quintiles by making a limited tax credit available to non-itemizers.

Mortgage-related deductions do little to reduce the cost of home ownership for those in the lowest income quintiles, according to a new report by National Center for Policy Analysis Senior Fellow Pamela Villarreal and Research Associates Matt Cafrelli and Joshua Latshaw.

“Mortgage deductions are the largest tax expenditure, and although they are hugely popular, they do not necessarily benefit every homeowner,” says Villarreal.

Current mortgage-related deductions benefit homebuyers who itemize – typically middle and higher income earners. In 2012:

     -- Over half the total value of home mortgage interest deductions were claimed by the top 40 percent of households, while the bottom quintile claimed only 14 percent of deductions.
     -- Twenty-seven percent of points deduction, which awards homebuyers for each 1 percent of their loan balance paid in addition to the down payment, were claimed by top earners, while the next 60 percent were claimed by taxpayers with incomes over $100,000.
     -- Twenty-two percent of the total value of private mortgage insurance deductions, the most equally distributed deduction, was claimed by earners in the bottom quintile – while only 18 percent were claimed by earners in the top quintile.

“Mortgage-related deductions benefit homebuyers who itemize, and income tax itemizers tend to be middle and higher income earners,” says Villarreal. “However, these tax benefits could be tailored to reduce the cost of home ownership for families in the lowest income quintiles by making a limited tax credit available to non-itemizers.”

Who Benefits from Mortgage Deductions?: http://www.ncpa.org/pub/who-benefits-from-mortgage-deductions

The National Center for Policy Analysis (NCPA) is a nonprofit, nonpartisan public policy research organization, established in 1983. We bring together the best and brightest minds to tackle the country's most difficult public policy problems — in health care, taxes, retirement, education, energy and the environment. Visit our website today for more information.

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Catherine Daniell
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