The Mortgage Interest Tax Deduction and the Great Recession
25 Pages Posted: 10 Mar 2018
Date Written: April 28, 2017
This paper revisits the mortgage interest deduction (MID) in the U.S. and its distribution across households using ZIP-code level data from the IRS Statistics of Income. Since the Great Recession, the total and average amount of mortgage interest deducted has fallen signiﬁcantly along with the number of deduction claimants as the home-ownership rate has declined dramatically since the peak of the mid-2000’s housing boom. We also use housing supply as an instrumental variable to better understand how geographic dispersion in housing prices can account for variation in ZIP-code average MID claims. While housing tax beneﬁts are concentrated in high-income areas and regions with inelastic supply, the dollar share of the MID has fallen among the wealthy since the housing bust. We further discuss the implications for policy changes such as the prospects of capping or eliminating the MID or relaxing zoning laws.
Keywords: Public Economics, Mortgage subsidies, Incidence, Optimal Taxation, House Prices, Mortgage Interest Deductions
JEL Classification: H22, R21, R28
Suggested Citation: Suggested Citation