The mortgage interest deduction helps lower the cost of homeownership for millions of families in the US. It allows taxpayers to subtract the interest they pay on a home mortgage of up to $750,000 from their taxable income. This lowers their tax bill, helping these taxpayers save money.
By lowering the cost, this tax break aims to encourage homeownership. It costs the government about $34 billion a year—more than twice as much as the Low-Income Housing Tax Credit.
But not all households can take advantage of the deduction. TPC estimates that only about 8 percent of households in the US benefitted from the mortgage interest deduction in 2024. And about 75 percent of federal revenue lost to the tax break went to households with incomes over $200,000 a year.
Is the mortgage interest deduction an effective way to increase homeownership?
It’s unlikely. TPC research suggests the mortgage interest deduction primarily benefits those who can already buy property, doing little to help first-time homebuyers or families with low incomes entering the housing market.
In addition, homeownership rates in the US are similar to those in countries like Canada and the United Kingdom that do not have a similar deduction.
Who benefits from the mortgage interest deduction and who misses out?
Research shows wealthier households are more likely to benefit from the tax break. That’s because homeowners have to itemize deductions on their tax returns to get the deduction. Only about 10 percent of tax filers itemized deductions in 2020, and those who itemize tend to earn higher incomes.
According to a TPC analysis, the mortgage interest deduction also disproportionately benefits White homeowners. (While about three-quarters of White families owned their homes in 2019,only 45 percent of Black and 48 percent of Hispanic families did.) And renters gain nothing from this tax break, despite many facing significant housing cost burdens.
More than three in ten households in the US spend over 30 percent of their income on housing. Yet the mortgage interest deduction primarily benefit the top 20 percent of earners.
In other words, the deduction does little to nothing to help families struggling to make ends meet, instead helping families who might buy their home with or without the tax break.
How could the tax system help more families afford housing?
One alternative is to restructure the mortgage interest deduction into a tax credit that serves only first-time homebuyers. This could reach a broader range of Americans.
Given the mortgage interest deduction’s disproportionate benefits for higher-income homeowners and its relatively high cost, policymakers have better opportunities to make housing more affordable for all Americans.
