Tax Incentives Benefit Younger Households Most

by bkrigbaum@solagroup.com





WASHINGTON–New
research from the National
Association of Home Builders (NAHB) reveals 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 was able to report for the first time how various tax
deductions are
used by different age groups. The analysis demonstrates that the
biggest
beneficiaries are younger households, who typically have large
mortgages, small
amounts of equity in their homes and growing families.

“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.” 

The
average mortgage interest deduction peaks for
taxpayers in the 35 to under-45 age group, followed by the 18-to
34-aged
taxpayers, and declines as the taxpayer gets older. According to the
research,
this occurs because 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. 

When
examining the age distribution of those claiming the
deduction for mortgage insurance, which is associated with homeowners
making a
downpayment of less than 20 percent, the analysis found that the
largest
share–59 percent–goes to those aged 18 to under-45.

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 shows that both housing deductions–for
mortgage interest and real estate taxes–fall as a share of household
income
for older taxpayers. In contrast, the share of other non-housing
deductions,
such as the medical expense, charitable contribution, and investment
interest
expense deductions, rises for taxpayers who are 65 and older.

The
entire NAHB Report, “Housing Tax Incentives:
Most Helpful to Younger Households” is available at www.nahb.org/TaxIncentivesStudy.


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