WASHINGTON – Oct. 5, 2010 – New research from the National Association of Home Builders (NAHB) finds that the benefits of housing-related tax deductions, such as the mortgage interest deduction, generally decline in value as individuals age.
Using Internal Revenue Service Statistics of Income (SOI) data, NAHB studied how housing tax deductions benefit different age groups. The analysis found that pro-housing policies benefit younger households most – homeowners who typically have large mortgages, a small amount of equity and growing families.
“Opponents falsely argue that the (mortgage interest) deduction is only for the wealthy, but it is clear that the mortgage interest deduction is also of great value to younger homeowners,” says Robert Dietz, assistant vice president for Tax and Policy Issues for NAHB. “Any tampering with this deduction would have a disproportionate impact, as a share of household income, on younger homeowners … (and) these are households who have growing demand for homeownership due to marriages and children.”
The average mortgage interest deduction peaks for taxpayers in the 35- to under-45 age group, followed by the 18-to 34-aged taxpayers. The mortgage interest deduction peaks soon after the taxpayer moves from renting to homeownership, and declines over time as homeowners pay down existing mortgage debt and increase homeowner equity.
The largest share of homeowners (59 percent) claiming a tax deduction for mortgage insurance goes to those aged 18 to under-45. Owners who made less than a 20 percent downpayment on a home generally pay mortgage insurance.
The age-related pattern for the smaller tax deduction for local and state real estate taxes, however, differs slightly. Unlike the mortgage interest deduction, which declines in value as taxpayers age, the value of the real estate tax deduction increases as taxpayers age, primarily due to increases in home values as household income and wealth increases.
The report also finds that both housing deductions – for mortgage interest and real estate taxes – falls as a share of household income for older taxpayers. In contrast, the share of other non-housing deductions, such as the medical expenses, charitable contributions and investment interest expense deductions, rises for taxpayers 65 and older.
To read the entire NAHB report, “Housing Tax Incentives: Most Helpful to Younger Households,” go to NAHB’s website: http://www.nahb.org/TaxIncentivesStudy