Among the repercussions the tax overhaul proposal can have on the mortgage interest deduction, the National Low Income Housing Coalition (NLIHC) and the Institute on Assets and Social Policy (IASP) at Brandeis University’s Heller School recently released a report, “Misdirected Investments: How the Mortgage Interest Deduction Drives Inequality and the Racial Wealth Gap.” The report states that the mortgage interest deduction exacerbates racial inequality and widens the racial wealth gap by distributing the annual $71 billion federal disbursement to primarily white, high-income homeowners.
According to the report, 84 percent of the deduction benefits go to households with more than $100,000 in income (about $55 billion annually), and 64 percent go to those with over $200,000. The report shows this also plays a role in the racial wealth gap, as most households (67 percent) are white and are more likely to be in a high-income bracket compared to black and Latino households.
Here’s a breakdown of the benefits by race:
- Latino: 7 percent
- Black: 6 percent
- White: 78 percent
The NLIHC and the IASP blame a faulty policy structure for the disparity in deduction distributions. Since the break primarily helps homeowners that itemize their deductions—even though 70 percent of Americans take the standard deduction—low- and moderate-income households, or homes with lower tax rates, stand to receive much less than high-income households or homes with higher tax rates.
These institutions are calling for reform of the mortgage interest deduction in a way that redirects the U.S. housing budget towards renter benefits and better housing security.
The NLIHC and the IASP propose:
- Turn the deduction into a tax credit so the value of the deduction is worth the same for all households and to benefit those that do not itemize deductions.
- Remove second home eligibility for the mortgage tax break to improve housing security for all.
- Reduce the mortgage interest eligibility cap from $1 million to $500,000 so federal dollars are subsidizing lower-income homes.
- Create a tax credit for renters to reduce the disparity in possible tax benefits between renters’ and homeowners’ housing costs.
- Increase investment in rental vouchers using tax reform savings to help low-income renters better afford housing in the private market.
Liz Dominguez is RISMedia’s associate content editor. Email her your real estate news ideas at [email protected].
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