The Mortgage Interest and Real Estate Tax Deductions: Policy Issues

The major tax preferences benefiting homeowners are the mortgage interest and real estate tax deductions, which allow home-owning taxpayers who itemize their deductions to reduce their income tax liability. In the tax policy community, a common, although misleading, criticism of these housing tax preferences is that they are claimed by a relatively small number of taxpayers and the benefits accrue mostly to higher-income taxpayers. When viewed relative to the reporting of taxable income, the distribution of tax liability, and the use of other tax preferences, these claims lack merit. These inaccurate observations also lead to flawed conclusions regarding the distribution of impacts associated with these housing deductions. Building on analysis provided in a previous HousingEconomics.com publication , this article demonstrates that the homeowner tax preferences make the income tax system more progressive and are justified by economic and tax policy principles.

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