Who Benefits from the Housing Tax Incentives?

Recent research conducted by economists at NAHB details who benefits from the major housing tax rules, including the mortgage interest and real estate tax deductions.

The findings in the paper illustrate the following points:

  • 68% of the benefit of the mortgage interest deduction (MID) is collected by homeowners with less than $200,000 of economic income (77% for the real estate tax deduction (RETD))

  • On a per-taxpayer basis, as a share of household income, the largest benefits are earned by the middle class
    • For taxpayers with less than $200,000 in adjusted gross income (AGI), the average benefit of the MID is equal to 1.76% of AGI (0.7% for the RETD)
    • For taxpayers, with more than $200,000 in AGI, the average benefit is equal to 1.5% of AGI (0.5% for the RETD)
  • Larger tax benefits are collected by larger families, who require larger homes
    • The average tax benefit from the MID for a family of two is $1,500 per year ($588 for the RETD)
    • The average tax benefit from the MID for a family of four $1,947 ($643 for the RETD)

The estimates in the paper supplement earlier research concerning age distribution analysis of the housing tax benefits, and are consistent with the overall result that the most important beneficiaries of the housing tax rules are middle class families, particularly younger buyers who must use mortgage debt (as opposed to rolled-over housing wealth) to purchase a home for a growing family.