Tax Benefits of Owning a Home are Declining or Gone for Some Households

Home-ownership for years has offered welcome tax relief because of the option of deducting mortgage interest and property taxes, which often adds up to more than the standard deductions for middle-income households. That usually means a lighter income tax bill.

But the trend has reversed somewhat, with those tax breaks offering less benefits — if any at all — thanks in large part to falling mortgage rates and a rising standard marital deduction (versus itemizing with mortgage interest and property taxes) since the housing market collapse of 2008.
For a married couple, who puts 20 percent down on a median-priced home and takes out a mortgage for the rest of the selling price, the standard deduction for 2015 is almost $2,500 more than what they’d get by itemizing their mortgage interest and property taxes, according to an analysis by John Burns Real Estate Consulting LLC.
However, those expenses easily exceeded the standard deduction in every year from 1972 to 2008, the John Burns report said.
The standard marital deduction has risen from $1,300 in 1972 to $12,600 today, meaning that the first $12,600 of itemized deductions has no benefit to consumers.
Says the John Burns report: “Even with other deductions that bring the taxpayer over the $12,600 limit, the tax savings are minimal. Years ago, we eliminated income tax savings from our calculation of the rent-versus-buy decision, and I cannot remember the last time I heard a prospective first-time home buyer (not in California or New York) mention income tax benefits as a reason for buying.”

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