May 29, 2009

How Many People Benefit from Mortgage Interest Deductions?

One of the widely known benefits of home ownership is that you can deduct the mortgage interest from your taxes. But not all of us are in a position to take advantage of that tax break. Exactly how many people actually see a tax break on home mortgage interest?

The IRS has a lot of tax statistics including tax statistics for individuals. One is the breakdown of stats for people with itemized deductions in 2005. There we can see that about 38.5 million people itemized their deductions and claimed home mortgage interest.

The Census has all sorts of information. The current 2009 Statistical Abstract shows a wide variety of stats on Americans. They have a whole section on housing. One of them is the Mortgage Characteristics of Owner Occupied Units for 2005. There we can see that about 48.3 million home owners had regular mortgages and/or home equity loans.

I'm using 2005 figures since that is the latest year I can get both figures for.

So comparing those two numbers of the 48.3 million people who could have theoretically gotten a tax break on their mortgage only 38.5 million did so. That is about 80% of us who benefit from home mortgage interest tax deductions. Put that another way 20% of the people with mortgages on their homes got NO tax break from it.

Also among the 80% of home owners with mortgages that did itemize, a portion of them would not have gotten the full potential tax benefits. Itemization with a mortgage interest deduction may have been marginally worth it compared to the standard deduction. For example if you are single and in the 25% bracket. You paid $5000 in interest and $2000 in taxes but you live in Nevada with no state taxes so thats all your deductions. Your itemized deductions are worth $7000 including $5000 in mortgage interest but the standard deduction is $5700. So your benefit from itemizing with the home deductions is $1300 rather than the full $7000.

While the mortgage interest tax deduction is a good benefit of buying a home it is not something that everyone will get the full benefit and a considerable number of people (20%) get no tax benefit from it whatsoever.

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