One of the more popular tax deductions available is the mortgage interest tax deduction. With this tax deduction, you can reduce your income with the help of the interest that you pay on your mortgage — as long as you itemize.
The problem some people see, though, is the fact that not everyone benefits equally from the mortgage tax deduction. In fact, Pew released the results of a study analyzing the mortgage tax deduction for the year 2010 to get an idea of who benefits most from the mortgage tax deduction.
Who Claims the Mortgage Tax Deduction?
First of all, the reality is that not a lot of taxpayers actually claim the mortgage tax deduction. Less than one third of taxpayers file for this deduction, and less than half of homeowners claim this deduction. This is due to the fact that only those who itemize can deduct their mortgage interest payments. Those who claim the standard deduction instead don’t get the advantage of the mortgage interest deduction. As a result, the deduction is claimed mainly by those in the upper middle class or higher socioeconomic conditions.
On top of that, the Pew reports that 2010 saw the government lose about $80 billion in revenue due to the mortgage tax deduction. Over the course of five years, according to the Joint Committee on Taxation, the mortgage interest tax deduction is expected to reduce government revenue by $379 billion.
The Pew report takes a look at geographic differences in the mortgage interest tax deduction as well. According to the study, those living on parts of the West and East coasts had the highest tax deductions, and claimed the mortgage interest deduction more often than those living in the Midwest and the South. California had a high deduction claim, with the average deduction amount adding up to more than $15,000.
Part of the reason for this disparity likely has to do with home prices. Home prices on the coasts are generally higher than those in other parts of the country. As a result, more interest is paid and the deduction is likely to be high enough to warrant itemizing rather than settling for the standard deduction.
Even those who don’t have a mortgage deduction high enough to overcome the standard deduction can still benefit from itemizing. Since the itemization process includes several different deductions, including charitable contributions and even some miscellaneous expenses, it’s possible to add other deductions to the tally, making it worth it to itemize.
Will the Mortgage Deduction Last?
Of course, the fact that so few taxpayers actually claim the mortgage interest deduction, and the fact that most of those who do claim the deduction are often a little higher on the income scale, makes this a tempting target for tax reformers.
Politicians are eying the tax code again, and many think that one of the easiest targets is the mortgage interest tax deduction. By getting rid of this deduction, politicians can simplify the tax code and save a little money. While $379 billion over five years isn’t a whole lot, it is still a savings, and if tax reformers can find similar savings — especially in areas that don’t affect a large number of taxpayers — the total of savings might prevent them from having to do something a little more drastic with the tax laws.