This document provides a summary of key facts about how home owners interact with the federal income tax system in the United States. It notes that there are 75 million home owners who can typically deduct mortgage interest and property taxes from their taxes. Around 45.5 million tax returns in 2007 claimed a mortgage interest or property tax deduction. Home owners pay between 80-90% of all federal individual income taxes. The document reviews how tax benefits are determined and outlines standard deductions and tax rates.

1. Home Owner Interactions with the
Federal Income Tax System
Presentation to
National Association of Realtors® Research Committee
New Orleans, LA
November 6, 2010
Danielle Hale, Economist

2. Facts on Home Owners and the
Federal Income Tax System
• There are 75 million home owners among 112 million
households in the U.S.
• Home owners can typically deduct mortgage interest, state
and local real estate taxes, and exclude a portion of capital
gains on the sale of their residence.
• In 2007, 143 million tax returns were filed. Of these, 45.5
million included a deduction for mortgage interest OR real
estate taxes.
• Home owners pay 80 to 90 percent of Federal Individual
Income Taxes.
• Among the age groups, 35 to 44 year olds have the largest
average mortgage interest deduction while those 65 and
older have the largest average real estate taxes deduction.
Sources: Census, IRS, NAR Research
Estimate
RESEARCH

3. How are Tax Benefits Determined?
• Home owner pays mortgage interest and real
estate taxes that can be itemized as deductions,
reducing the owner’s amount of taxable income
• If the home owner has enough total deductions
(MID, Real Estate Taxes, State and Local
Income/Sales Taxes, Charitable Contributions,
Medical Expenses, etc.) to exceed standard
deduction for filing status and itemizes:
Tax Savings = Deductions * Marginal Tax
Rate
RESEARCH

4. 2010 Standard Deductions and Marginal Tax
Rates
Filing Status Standard
Deduction*
Single $5,700
Head of
Household $8,400
Married Joint $11,400
Married Separate $5,700
Filing Status 10% 15% 25% 28% 33% 35%
Single $0 $8,375 $34,000 $82,400 $171,850 $373,650
Head of
Household
$0 $11,950 $45,550 $117,650 $190,550 $373,650
Married Joint $0 $16,750 $68,000 $137,300 $209,250 $373,650
Married Separate $0 $8,375 $34,000 $68,650 $104,625 $186,825
Source: Tax Policy Center 2010
Projection
*Additional Standard Deduction Available for Elderly and Blind
RESEARCH

5. What Might an Owner Deduct?
• $200,000 home purchased
with 10% down payment , 5.5
percent mortgage interest rate
• Monthly payment = $1,022 for
principle and interest
• Interest paid is $825/month or
$9,900 during the first year.
• Property taxes of 1 percent
add another $167/month or
$2,000 per year in the first
year
• First-year home-related
deductions are $11,900!
RESEARCH
Source: NAR Calculations

6. About the Mortgage Interest Deduction (MID)
• 38.5 million individual
income tax filers
claimed a mortgage
interest deduction
(MID) in 2008
• Of the 75 million home
owners, about 32
percent own their
homes outright, they
have no mortgage.
Sources: Census, IRS 2008, NAR Research
Estimate
RESEARCH

7. Mortgage Interest Deducted, by State
States by Share of Returns
Claiming Deductions
1 Maryland 38%
2 Connecticut 35%
3 Colorado 35%
4 Minnesota 34%
5 Virginia 34%
46 Louisiana 19%
47 Mississippi 18%
48 West Virginia 15%
49 South Dakota 15%
50 North Dakota 15%
States by Size of Avg
Deduction
1 California $18,876
2 Hawaii $16,730
3 Nevada $15,502
4 Washington $14,262
5 Maryland $14,162
46 Kentucky $8,345
47 Mississippi $8,301
48 Nebraska $8,233
49 Iowa $8,104
50 Oklahoma $7,992
RESEARCH
Sources: IRS 2008, NAR Research Estimate

8. Average Mortgage Interest Deducted, by
Age
Sources: IRS 2008, NAR Calculations
RESEARCH

9. About the Real Estate Tax Deduction
• In 2008, 29.3 percent of individual income tax
filers claimed a deduction for real estate taxes
• This is a larger share than the 26.8 percent
(38.5 million) who claimed the MID
• 41.6 million tax returns claimed a deduction
for real estate taxes in 2008
Sources: Census, IRS 2008, NAR Research
Estimate
RESEARCH

10. Real Estate Taxes Deducted, by State
States by Share of Returns
Claiming Deductions
1 Connecticut 41%
2 Maryland 41%
3 New Jersey 39%
4 Minnesota 38%
5 Massachusetts 36%
46 Mississippi 20%
47 South Dakota 17%
48 North Dakota 17%
49 Louisiana 17%
50 West Virginia 17%
States by Size of Avg
Deduction
1 New Jersey $7,918
2 New York $7,103
3 Connecticut $6,293
4 New Hampshire $6,146
5 Illinois $5,473
46 South Carolina $1,665
47 Mississippi $1,591
48 Arkansas $1,406
49 West Virginia $1,282
50 Alabama $1,269
RESEARCH
Sources: IRS 2008, NAR Research Estimate

11. Average Real Estate Taxes Deducted, by
Age
RESEARCH
Sources: IRS 2008, NAR Calculations

12. • Some home owners do
not itemize.
• NAR estimates that
these 12 million owners
pay between 5 and 11
percent of all income
taxes.
Home Owner Tax Share and
Non-Itemizing Home Owners
RESEARCH
Source: IRS 2007, NAR Calculations
%?

13. Temporary Tax Measure: The First-time Home
Buyer Tax Credit
All
Buyers
First-time
Buyers
Repeat
Buyers
Used tax credit 71% 93% 48%
Did not qualify for
tax credit 27 6 49
Was not aware of
tax credit 2 1 3
RESEARCH
Source: 2010 NAR Profile of Home Buyers and
Sellers
Before Nov
2009
After Nov
2009
Used tax credit 58% 79%
Did not qualify for
tax credit 40 20
Was not aware of
tax credit 2 2
• The 2010 Profile of Home
Buyers and Sellers has
new results on the First-
time Home Buyer Tax
Credit.
• Nearly 80 percent of
home buyers who closed
in November 2009 or later
used the tax credit.

14. Appendix
Additional Charts/Data

15. Debt and Deficits
• Individual Comparison
– Debt = Total money owed
– Deficit = Annual Spending Exceeds Income for fixed
period
• What results from deficits and debt?
– Individual
– Country
• Evidence that debt above 90 percent reduces growth
(Reinhart and Rogoff)
• Other rules of thumb suggest that deficits raise interest rates
and reduce growth
RESEARCH

16. Annual Federal Deficits through 2020
Source: OMB
RESEARCH

17. Net Federal Debt Outstanding
Source: OMB
RESEARCH

18. Net Federal Revenue, by Source
Source: OMB
RESEARCH

19. Net Federal Outlays, by Category
RESEARCH
Source: OMB

20. Ok, we have a Fiscal Problem. Where to
cut?
• Mandatory Spending (53% in 2000; 60% in 2009):
– Social Security, Medicare/Medicaid
• Discretionary Spending (34% in 2000; 35% in
2009):
– Defense, Homeland Security, Commerce, Education
• Tax Expenditures:
– Reduction in income tax liability as a result of special
tax provisions or regulations to particular taxpayers
– Revenue losses due to special exclusion, exemption,
or deduction from gross income or special credit,
preferential rate of tax, or deferral of tax liability
RESEARCH
Source: OMB

21. Tax Expenditures – Controversy?
• The tax expenditure concept relies heavily on a normative notion that
shielding certain taxpayer income from taxation deprives government of its
rightful revenues. This view is inconsistent with the proposition that income
belongs to the taxpayers and that tax liability is determined through the
democratic process, not through arbitrary, bureaucratic assumptions.
1999 JEC Report for Representative Jim Saxton (R-NJ)
• “In some cases, however, an item listed as a tax expenditure may not really
be a subsidy. Instead, it might be defensible on pure tax policy grounds as a
proper adjustment in computing ability to pay taxes.”
Citizens for Tax Justice
RESEARCH

22. Largest Tax Expenditures
Top 10 Tax Expenditures 2009 – 2013 (billions) Avg
Deduction of mortgage interest on owner-occupied
homes
$573 $115
Exclusion of employer contributions for health care, health
insurance premiums
$568 $114
Exclusion of pension contribution and earnings $533 $107
Reduced rates of tax on dividends and long-term capital
gains
$419 $84
Exclusion of Medicare benefits $317 $63
Earned income credit $261 $52
Deduction of state and local taxes $250 $50
Deduction for charitable contributions $184 $37
Child tax credit $160 $32
Exclusion of capital gains at death $159 $32
RESEARCH
Source: CRFB from JCT

23. Annual Federal Deficits 1941 through
1960
Source: OMB
RESEARCH

24. Net Federal Debt Outstanding
Source: OMB
RESEARCH

25. Net Federal Outlays by Category Over
Time
RESEARCH
Source: OMB

26. Mortgage Interest Deducted, by State
RESEARCH
Source: IRS 2008, NAR Calculations

27. Mortgage Interest Deducted, by State
RESEARCH
Source: IRS 2008, NAR Calculations

28. Real Estate Taxes Deducted, by State
RESEARCH
Source: IRS 2008, NAR Calculations

29. Real Estate Taxes Deducted, by State
RESEARCH
Source: IRS 2008, NAR Calculations

30. Home Ownership Rates by Age, 1995 -
2009
RESEARCH
Source: Census Housing Vacancy
Survey

31. Treasury and NAR Estimates of
First-time Home Buyer Tax Credit Usage
First Time Homebuyer
Credit for Houses
Purchased in 2009 -
Number of Filers 1, 5 /
First Time Homebuyer
Credit for Houses
Purchased in 2009 -
Sum of Credits Claimed
1, 5/
First Time Homebuyer
Credit for Houses
Purchased in 2009 -
NAR Estimated Eligible
Buyers 2, 3 /
First Time Homebuyer
Credit for Houses
Purchased to Date -
NAR Estimated Eligible
Buyers 2, 4 /
NORTHEAST 222,967 $1,603,737,508 575,159 639,805
SOUTH 684,314 $4,981,998,002 1,445,958 1,606,844
MIDWEST 386,087 $2,695,982,104 919,278 1,021,790
WEST 404,335 $3,024,271,352 855,545 951,481
OTHER 850 $6,466,598 not estimated not estimated
TOTALS 1,698,553 $12,312,455,564 3,887,109 4,322,094
1 / First Time Homebuyer Credits as of May 29, 2010.
(Copied from source:
http://treasury.gov/recovery/docs/Treasury%20Recovery%20Act%20Data%20as%20of%207-31-
2010.xls).
2 / Sum of states is not equal to US total due to non-estimated areas
3 / NAR Estimated Eligible Buyers includes purchases through the end of February 2010
4 / NAR Estimated Eligible Buyers includes purchases from January 2009 to April 2010
5 / NAR aggregations of published Treasury data
RESEARCH
Source: Treasury, NAR Estimates

32. Other Resources
• Facebook:
http://www.facebook.com/pages/NAR-Research/7
• Twitter:
http://twitter.com/NAR_Research
• Website:
http://www.realtor.org/research
• MID Benefit/Buying Power Calculator:
Available on iTunes
RESEARCH