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Who Receives Homeownership Tax Deductions and How Much?

Adam Carasso

Published: August 01, 2005
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The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

© TAX ANALYSTS. Reprinted with permission.

Note: This report is available in its entirety in the Portable Document Format (PDF).


Some of the costliest tax expenditures the federal government allows go to subsidizing homeownership. According to estimates by the Joint Committee on Taxation for fiscal 2004, the total tax expenditure value of the mortgage interest deduction was $70.2 billion while the value for the real estate tax deduction was $19.3 billion.

The charts below show that federal tax subsidies for homeownership disproportionately go to taxpayers in upper-income brackets. The top chart shows the distribution of total tax expenditures for the mortgage interest and real estate tax deductions by income class. Fifty-four percent of those tax expenditures went to taxpayers with incomes exceeding $100,000 and 72 percent went to taxpayers with incomes exceeding $75,000. The bottom chart shows the average tax expenditure per tax return. Taxpayers with incomes between $0 and $75,000 see average subsidies ranging from $400 to $1,500. However, taxpayers with income above $75,000 enjoy much larger average subsides, reflecting higher average home values and rates of homeownership. Very few taxpayers receive those two subsidies at low incomes — as most lowincome tax return filers owe little tax, do not itemize, and are less likely than taxpayers in other groups to own a home — and very many taxpayers receive them at higher incomes. When these housing tax expenditures are compared alongside overall tax liability by income class (not shown), however, middleincome households are likely to gain more on net than the well-off.

Not included here are the substantial exclusions of net imputed rental income or capital gains on sales of principal residences, although the distribution of those tax expenditures follows a roughly similar pattern. Some verylow- income households do receive generous housing subsidies from federal spending programs, but those subsidies encourage renting and not owning.

Note: This report is available in its entirety in the Portable Document Format (PDF).


The Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution, provides independent, timely, and accessible analysis of current and emerging tax policy issues for the public, journalists, policymakers, and academic researchers. For more tax facts, see http://www.taxpolicycenter.org/taxfacts.