Research released by the National Association of Home Builders (NAHB) shows that benefits of housing related tax deductions, including mortgage interest deductions, generally decline in value as taxpayers get older. These findings are a counter argument to the claims that mortgage interest deductions exclusively benefit high-income households, as this research clearly shows that younger, first-time homeowners seem to benefit greatest.
“Opponents falsely argue that the deduction is only for the wealthy but it is clear that the mortgage interest deduction is also of great value to younger homeowners,” said 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 who have relatively higher mortgage interest payments. These are households who have growing demand for homeownership due to marriages and children.”
Conducted for the first time by the NAHM, the research outlining how various tax deductions are used by different age groups using data from the Internal Revenue Service Statistics of Income (SOI). Results showed that the biggest beneficiaries of the various tax deductions in general are younger households, which typically have bigger mortgages, smaller amounts of home equity, and expanding family size.
The average mortgage interest deduction is at its peak for taxpayers from 35 to under 45, followed by the 18 to 34 age group and declines as taxpayer age increases. The reason for this result is that mortgage interest deductions peak soon after the taxpayer switches from being a renter to a homeowner and declines over time as the homeowner pays down their existing mortgage debt and increase their home’s equity.
Research also found that the largest share of those claiming deductions for mortgage insurance was the 18 to under 45 age group, at 59 percent.
However, for smaller tax deductions, like state and local real estate tax, the value of real estate tax deductions increase as the taxpayers get older. This can be attributed to the increase in home value, as the household income and wealth increase. Both housing deductions, mortgage interest and real estate taxes, are considered a share of household income for these older taxpayers. On the other hand, non-housing deductions, such as medical expense, charitable contribution, and investment interest expense deductions, increase for taxpayers in the 65 and older age group.
To read the full NAHB Report, “Housing Tax Incentives: Most Helpful to Younger Households” see here.
Written by Kelly Mellott