NCPA - National Center for Policy Analysis

Who Benefits from the Mortgage Interest Deduction?

January 3, 2013

The various loopholes, deductions and credits over the years have contributed to the complexity of the income tax code. There is a lot of confusion about certain codes, enabling a small percentage of American families from gaining large benefits. The most prominent example of this is in the mortgage interest deduction (MID), say Anthony Randazzo and Dean Stansel of Reason Magazine.

  • In 2010, only 32.6 percent of income tax returns had any itemized deductions.
  • And of those, 20.8 percent did not claim any mortgage interest.
  • As a result, only 22.9 percent of filers used the MID.
  • Surprisingly, the filers that used the MID got to claim benefits of $82.7 billion total.

To come up with solutions to change the MID, it is important to look at the type of households claiming the MID.

  • Nearly 55 percent of those claiming the MID are households making $100,000 or more a year.
  • Moreover, these households receive 78 percent of the deduction's total benefits.
  • In 2010, families making between $40,000 and $50,000 made up 5.3 percent of the mortgage interest that was deducted from taxable income.
  • That averages out to $737 a year.

It is clear from the breakdown that the MID does not help the middle class as many thought it would. Assuming middle-income families fall between the $40,000 to $75,000 ranges, this group received an average monthly benefit of only $80. Those that benefit most from the MID are people in the upper class.

Instead, the MID should be phased out and the savings used to give all taxpayers lower income tax rates. This would benefit everyone rather than the select few that benefit from the MID. In addition, the savings from phasing out the MID could be applied to deficit reduction.

Source: Anthony Randazzo and Dean Stansel, "Who Benefits from the Mortgage Interest Deduction," Reason Magazine, December 12, 2012.


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