The Mortgage Interest Deduction

The Short Version of What Every REALTOR® Needs to Know about

Housing Tax Incentives Danielle Hale – May 16, 2013

US Publicly Held Debt has exceeded 75% of GDP

20072008

20092010

20112012

20132014

20152016

20172018

20192020

20212022

20230

5000

10000

15000

20000

25000

30000

Publicly Held Debt New Debt (Deficit) GDP

Source: OMB, Haver

MID since 1913

1913

2013

Other tax situations… Loopholes?

How many people take the MID?

A. Roughly 35 to 40 million tax filersB. Roughly a quarter of all tax payersC. Roughly half of all home ownersD. Roughly three-quarters of home

owners with a mortgage

35 to 40 Million Tax Filers Claim the Mortgage Interest Deduction each year

2007 2008 2009 2010 20110

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

MID claimers are roughly ¼ of tax filers, ½ of home owners, and ¾ of mortgaged home owners

2007 2008 2009 2010 20110%

10%20%30%40%50%60%70%80%90%

32,000,000

34,000,000

36,000,000

38,000,000

40,000,000

42,000,000

44,000,000

27% 27% 26% 26% 24%

55%51% 49% 49% 48%

81%75% 73% 73% 72%

Number of MID Filers Share of All Tax FilersShare of Home Owners Share of Mortgaged Home Owners

How many people take the MID as compared to other popular tax provisions?

A. CharitableB. Child Tax CreditC. Qualified DividendsD. Ordinary DividendsE. Real Estate Tax Deduction

There are slightly more RE Tax than MID claims each year, and roughly the same number of charitable

claims depending on the year.

2007 2008 2009 2010 20110

5,000,00010,000,00015,000,00020,000,00025,000,00030,000,00035,000,00040,000,00045,000,00050,000,000

05,000,00010,000,00015,000,00020,000,00025,000,00030,000,00035,000,00040,000,00045,000,000

Number of MID Filers CharitableChild Tax Credit Qualified DividendsOrdinary Dividends Real Estate Tax Deduction

The life-cycle hypothesis at work in housing:

• The life-cycle hypothesis suggests that consumers try to smooth consumption over their lifetime

• Nearly 90 percent of recent home buyers financed a home purchase– Nearly all recent home buyers under age 44

financed their home purchase while only roughly half of those 65 or older did so

– Typical first-time buyers financed 96 percent of their home purchase while repeat buyers financed 87 percent

Financing with a fully amortizing fixed-rate mortgage has 2 key implications:

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 $-

$100 $200 $300 $400 $500 $600 $700 $800 $900

$1,000

Monthly Interest Monthly Principal

Constant Monthly Payments

Decreasing Interest Payments

The typical MID beneficiary is:

• Under 45• Married• With Kids• Earning less than $200,000

Home Ownership is Not A Loophole