NCPA - National Center for Policy Analysis

Location, Location, Location

April 29, 2003

Tax deductions intended to encourage home ownership nationwide are now working to subsidize expensive areas, says Scott Burns. Buy a home in an expensive East or West Coast city and you will be showered with decades of tax savings, primarily from the mortgage interest deduction. Buy a home in Peoria or Pittsburgh and you'll get zilch, because deductible interest or property taxes are so much less.

After reviewing median home sale prices in 125 urban areas and calculating the tax benefits buyers would receive, Burns discovered:

  • In the 25 lowest-price areas, anyone buying a median-price home would receive virtually no tax benefit.
  • If you bought a median-price home in Fargo, N.D., you would enjoy total tax savings of $67 over two years; every year thereafter, your tax savings would be zero.
  • Buy a median-price home in places like Daytona Beach, Fla., Topeka, Kan., and El Paso, and there are no tax benefits ever.

Looking at the other end of the price scale, Burns found:

  • Homes in the 25 most expensive areas of the country range in median price from a staggering $516,400 in San Francisco to $189,900 in the Minneapolis-St. Paul area.
  • San Diego, the fourth most expensive area (Orange County, Calif., and Boston rank second and third, respectively) has a median home sale price of $379,300.
  • Assuming a 3 percent down payment, a 5.5 percent interest rate, a 1 percent of market value tax rate and a 30 percent tax rate, San Diego home buyers can expect tax benefits of $59,161 over a 23-year period -- this is 15.6 percent of the purchase price.
  • Buyers in Minneapolis and St. Paul, the 25th-ranked area, receive $17,134 in tax benefits over 18 years on median-price homes -- the tax benefits are worth 9 percent of their original purchase price.

Source: Scott Burns, "Tax break may have left home," Dallas Morning News, April 28, 2003.


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