A new study by the National Association of Home Builders demonstrates that households across the economic spectrum benefit from housing tax incentives. This research counters the often-heard but erroneous claim that the mortgage interest deduction almost exclusively benefits high-income households.
The study, which was authored by NAHB tax economist Robert Dietz, Ph.D., supplements previous NAHB research regarding housing tax incentives, explores the problems with government methods of measuring the size of housing tax expenditures, and re-examines the income distribution of the mortgage interest and real estate tax deductions.
A multitude of descriptive statistics in the report demonstrate that the housing-related tax deductions, the mortgage interest and real estate tax deductions, strongly benefit not just average home buyers but also younger households who tend to be recent home buyers with larger mortgage debt. This is true in terms of aggregate amounts claimed on tax forms, average deduction amounts, and shares of taxpayer income.
The paper’s conclusions suggest that proposals to change these deductions need to take into account the generational consequences, particularly with respect to first-time home buyers, as well as the impacts on modest-income households.