An Economic Analysis of the Mortgage Interest June 25, 2020
Deduction
Mark P. Keightley
This report provides an economic analysis of the mortgage interest deduction. Although other tax
Specialist in Economics
benefits for homeowners exist, the deduction for mortgage interest is arguably the most well-

known tax benefit, and is the tax benefit most often associated with promoting homeownership.
Due to recent changes enacted by P.L. 115-97, often referred to as “The Tax Cuts and Jobs Act”

or TCJA, the size of the deduction, in terms of forgone federal tax revenues, has decreased
significantly. For example, in 2017, prior to the TCJA, the deduction was estimated to cost $66.4 billion by the Joint
Committee on Taxation (JCT). In comparison, the JCT estimated the deduction will cost $30.2 billion in 2020. Much of the
reduced cost is the result of the TCJA’s nearly doubling of the standard deduction and limitation of the state and local tax
(SALT) deduction, which made itemizing deductions less attractive to many taxpayers; the mortgage interest deduction may
only be claimed if a taxpayer itemizes their deductions. Additionally, the cost of the deduction was reduced because the
TCJA temporarily lowered the maximum eligible mortgage amount for the deduction from $1 million to $750,000 and
changed the treatment of home equity debt.
The report begins by summarizing trends in homeownership and reviewing current and past versions of the mortgage interest
deduction. Next, brief historical and international perspectives of the mortgage interest deduction are presented. The analysis
then focuses on two dimensions of promoting homeownership and the mortgage interest deduction. First, the analysis focuses
on the rationales commonly offered for providing tax benefits for homeowners, mainly that homeownership (1) bestows
certain benefits on society as a whole, such as higher property values, lower crime, and higher civic participation, among
others; (2) is a means of promoting a more even distribution of income and wealth; and (3) has a positive e ffect on living
conditions, which can lead to a healthier population. Economists have been able to establish that a correlation exists between
homeownership and a number of these outcomes, but have had difficulty determining the nature of the relationship (e.g., does
homeownership lead to financial stability, or are financially stable households more likely to own their home because they
have the resources to do so?).
The analysis then turns to examining the effect that the mortgage interest deduction has on the homeownership rate, housing
consumption, and the economy. The analysis in this report suggests that th e deduction may have a larger effect on the size of
homes purchased than on the decision to become a homeowner. The possibility that attempting to p romote homeownership
via the tax code may distort the allocation of capital and labor, which could hinder the economy’s performance in the short
run and long run, is also raised.

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An Economic Analysis of the Mortgage Interest Deduction

Introduction
The mortgage interest deduction has historical y been important to policymakers and the public
due in part to homeownership’s association with the American Dream. It is often argued that
homeownership paves the way to financial stability and equality, and that homeowners are
happier and healthier, both emotional y and physical y. Another frequent contention is that
homeownership generates benefits for those beyond just a home’s owner in the form of higher
neighborhood property values, lower crime rates, and greater civic participation, among others.
Economists have been able to establish that a correlation exists between homeownership and a
number of these outcomes, but have had difficulty determining the nature of the relationship (e.g.,
does homeownership lead to financial stability, or are financial y stable households more likely to
own their home because they have the resources to do so?).
The mortgage interest deduction may help individuals and society realize these benefits if they
are the result of higher homeownership rates, and if the mortgage interest deduction is effective at
promoting homeownership. Economists express caution, however, over how effective the
deduction may be at promoting homeownership since the deduction does not address the primary
barrier to homeownership, the down-payment requirement. Additional y, any effect the deduction
has had on homeownership in the past is likely now smal er due to the 2017 tax revision (P.L.
115-97), commonly referred to as the Tax Cuts and Jobs Act (TCJA). The TCJA reduced the
maximum mortgage amount that qualifies for the deduction and, more importantly, nearly
doubled the standard deduction, making itemized deductions less attractive to many taxpayers.
Only those taxpayers who itemize their deductions are eligible for the mortgage interest
deduction.
U.S. Homeownership over Time
The homeownership rate in the United States
Homeownership at a Glance
general y increased for much of the period
over which data are available. In 1900, 46.5%
Year
Homeownership Rate
of Americans owned the home that they lived
in. By 1950, the homeownership rate had
1900
46.5%
increased to 55.0%, and to 67.4% by 2000.
1950
55.0%
Homeownership peaked in 2004 at 69.0% (not
2000
67.4%
shown), and today it stands at 65.3%. The
2005
68.9%
most current data from the third quarter of
2010
66.9%
2019 show that of the 139.8 mil ion homes in
2015
63.7%
the United States, 79.5 mil ion serve as
2019
64.5%
principal residences.1 Another 43.2 mil ion
homes are renter-occupied, and the remaining
2020 (Q1)
65.3%
17.1 mil ion are either for sale, for rent, or for
Source: U.S. Census Bureau.
seasonal use.

1 U.S. Census Bureau, Current Population Survey/Housing Vacancy Survey, T able 4, https://www.census.gov/housing/
hvs/data/q319ind.html.
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The size of homes that Americans own has also general y trended upward over time, while family
size has trended downward.2 In 1970 the median new home was around 1,385 square feet. By
2010, the median new home was roughly
Home and Family Size
2,169 square feet—an increase of 57%. Over
this same time period, the average family size
Median New
decreased. In 1970, the average family size
House Size
Average
was 3.58 persons; in 2010, it was 3.16
Year
(sq. ft.)
Family Size
persons. The median home size continued to
1970
1,385
3.58
increase through 2015, but by 2018 had
1980
1,595
3.29
decreased slightly. Between 2010 and 2018,
the average family size ticked slightly lower.
1990
1,905
3.19
Overal , the data suggest that the trend upward
2000
2,057
3.17
in home size has been even larger after
2005
2,227
3.13
adjusting for family size. In short, Americans
2010
2,169
3.16
have tended to build bigger homes while
2015
2,467
3.14
tending to have smal er families. This trend
2018
2,386
3.14
can have important ramifications in terms of
land use, energy use, transportation, and
Source: Statistical Abstract of The United States.
affordability. An important policy question is
then what role, if any, does the mortgage
interest deduction play in determining the size of homes buyers purchase? This is addressed in the
“Effect on Housing Consumption” section of this analysis.
The Mortgage Interest Deduction
Current Law
Homeowners are al owed to deduct the
Distribution of Mortgage Interest
interest they pay on a mortgage that
Deduction Tax Expenditure by Income
finances a primary residence or a second
Class, 2018
home as long as they itemize their tax
deductions. For example, a homeowner
Share of
Share of Tax
who pays $10,000 in mortgage interest in
Income Class
Claimants
Expenditure
a given year and itemizes deductions can
subtract $10,000 from his or her adjusted
Below $30k
0.6%
0.1%
gross income. If this individual is in the
$30k to $40k
0.9%
0.2%
24% marginal tax bracket, the deduction
$40k to $50k
1.5%
0.4%
reduces his or her income taxes by $2,400
$50k to $75k
8.6%
2.7%
($10,000 multiplied by 24%).
$75k to $100k
12.0%
5.8%
The value of the deduction to a
homeowner general y increases with
$100k to $200k
39.0%
26.8%
taxpayer income for three reasons. First,
$200k and over
37.3%
63.9%
the higher income households are
Total
100%
100%
general y more likely to itemize their tax
deductions, which is a prerequisite for
Source: CRS calculations using JCT JCX-55-19, Table 3.
benefiting from the mortgage interest

2 Average household size has followed a similar trend. A household includes all individuals living in the same housing
unit, whereas a family includes all individuals related by birth, marriage, or adoption who reside together.
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deduction. For example, according to Tax Policy Center (TPC) estimates, about 1% of households
in the bottom 40% of the income distribution itemized in 2018 compared to 40% of households in
the top 20% of the distribution.3 Second, marginal tax rates increase with income. An individual
in the 35% marginal tax bracket who pays $10,000 in mortgage interest would realize a reduction
in taxes of $3,500, in comparison to the previous example of an individual in the 24% bracket
who realized a $2,400 reduction in taxes. Third, higher-income individuals tend to purchase more
expensive homes, which results in larger mortgage interest payments, and hence, larger
deductions. These three reasons explain why the benefits of the mortgage interest deduction
mostly accrue to upper-income households.
There are limits to the amount of mortgage interest that may be deducted. The limits currently in
place were enacted by P.L. 115-97, often referred to as “The Tax Cuts and Jobs Act,” or TCJA,
and are in effect through 2025. Absent any legislative changes, the rules governing the mortgage
interest deduction wil revert back to their pre-TCJA status starting in 2026 (discussed below).
For mortgage debt incurred before December 16, 2017, the deduction is limited to the interest on
the first $1 mil ion of combined mortgage debt on primary and secondary residences ($500,000
for single filers, head of household filers, or married taxpayers filing separately). For mortgage
debt incurred on or after December 16, 2017, the deduction is limited to the interest incurred on
the first $750,000 of combined mortgage debt ($375,000 for taxpayers filing as single, head of
household, or married filing separately). Mortgage debt resulting from a refinance is treated as
having been incurred on the origination date of the original mortgage for purposes of determining
which mortgage limit applies.
Under current law, the interest on home equity loans is deductible in two circumstances. First, the
loan must be used to finance expenditures related to the home—for example, to remodel a
kitchen. This restriction applies regardless of when the original mortgage or home equity loan
was originated. Second, the homeowner’s combined mortgage debt on their primary and
secondary residences, plus the balance on their home equity loan, cannot exceed the applicable
loan limit ($1 mil ion or $750,000).4
Prior Law
Prior to the TCJA, homeowners were al owed an itemized deduction for the interest paid on the
first $1 mil ion of combined mortgage on their primary and secondary residences. Homeowners
were also al owed to deduct the interest paid on a home equity loan. However, a separate and
additional limit of $100,000 applied to home equity loans, which were defined as debt that was
not incurred in the purchase, construction, or substantial improvement of a residence. Thus, a
homeowner was permitted to deduct the interest on home equity loans that were used to finance
personal expenditures, such as paying for a vacation or a child’s college education, in addition to
financing home improvements. A homeowner’s combined mortgage and home equity debt was
capped at $1.1 mil ion.

3 T ax Policy Center, “T18-0001—Impact on the Number of Itemizers of H.R.1, T he T ax Cuts and Jobs Act (T CJA), By
Expanded Cash Income Level, 2018,” January 11, 2018, https://www.taxpolicycenter.org/model-estimates/impact-
itemized-deductions-tax-cuts-and-jobs-act-jan-2018/t18-0001-impact-number.
4 Determining the applicable loan limit is more complicated when a homeowner has mortgage and home equity debt
that is subject to the $1 million limit (i.e., was incurred before December 16, 2017), and then later in curs debt that is
subject to the $750,000 limit (i.e., was incurred on or after December 16, 2017). In this case, the older debt that is
subject to the $1 million limit counts toward the $750,000 limit for any newer debt.
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For more than 70 years, there was no limit on the amount of home mortgage interest that could be
deducted.5 The Tax Reform Act of 1986 (TRA86; P.L. 99-514) eventual y restricted the deduction
to interest on loans not exceeding a home’s purchase price, plus any improvements, and on debt
used for qualified medical and educational expenses that was secured by the property. TRA86
also limited the number of homes for which the deduction could be claimed to two. Subsequently,
the Omnibus Budget Reconciliation Act of 1987 (P.L. 100-203) introduced the limits that existed
prior to the enactment of the TCJA—specifical y, the $1 mil ion limitation on combined mortgage
for a first and second home, as wel as the $100,000 limitation on home equity debt (with no
restrictions on use).
Historical Perspective
Although some contend that the mortgage interest deduction’s objective is to promote
homeownership, this does not appear to be the deduction’s original purpose. When laying the
framework for the modern federal income tax code in 1913, Congress recognized the importance
of al owing for the deduction of expenses incurred in the generation of income, which is
consistent with traditional economic theories of income taxation.6 As a result, al interest
payments were made deductible with no distinction made for business, personal, living, or family
expenses. It is likely that no distinction was made because most interest payments were business-
related expenses at the time and, compared to today, households general y had little debt on
which interest payments were required—credit cards had not yet come into existence, and the
mortgage finance industry was in its infancy.7 In addition, the government entities and programs
that are commonly associated with the mortgage market today (e.g., Federal Housing
Administration [FHA], U.S. Department of Housing and Urban Development [HUD], U.S.
Department of Veterans Affairs’ [VA] Loan Guaranty Program, Fannie Mae, Freddie Mac, and
Ginnie Mae) were not yet created.
International Perspective
The United States is not alone in providing a tax benefit to homeowners with mortgage debt. At
least 15 other member countries of the Organisation for Economic Co-operation and
Development (OECD) offer some type of tax relief for mortgage payments, with the relief most
often in the form of a deduction for mortgage interest.8 As Figure 1 shows, homeownership rates
among these countries varied considerably in 2018, from a low of 48% in Austria to a high of
78% in Estonia. The U.S. homeownership rate of 63% was five percentage points lower than the
average across all OECD countries of 68%.9,10 Noticeably absent from Figure 1 are several other

5 U.S. Congress, Senate Committee on the Budget, Tax Expenditures: Compendium of Background Material on
Individual Provisions, committee print, prepared by Congressional Research Service, 115 th Cong., 2nd sess., December
2018, S.Prt 115-28 (Washington: GPO, 2018), pp. 335 -341.
6 Sen. William Borah, Congressional Record, August 28, 1913, p. S3832.
7 For more information on the history of the mortgage market, see Richard K. Green and Susan M. Wachter, “The
American Mortgage in Historical and International Context,” The Journal of Economic Perspectives, vol. 19, no. 4
(Autumn 2005), pp. 93-114; and Kenneth A. Snowden, Mortgage Banking in the United States, 1870 -1940, Research
Institute For Housing America, September 10, 2014.
8 T he OECD also found that Russia and Colombia provided deductions for mortgage interest. Neither Russia nor
Colombia is a member of the OECD and reliable homeownership rates for both countries could not be located.
9 T he 68% average homeownership rate includes countries with and without a tax subsidy for mortgage interest.
10 T he OECD noted that the Netherlands, when compared to the United States, had more than three times as much in
forgone tax revenue as a percentage of GDP as a result of its mortgage interest deduction, though its homeownership
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large developed countries with no mortgage interest deduction, specifical y Australia (with a
homeownership rate of 63%), Canada (68.5%), Germany (43.7%), France (62%), and the United
Kingdom (64.7%). Though none of these countries offer a mortgage interest deduction, al but
Germany provide other tax subsidies for homeowners.11
Figure 1. Homeownership Rates in Selected Countries with a Tax Relief for
Mortgage Payments Subsidy, 2018

Source: OECD Affordable Housing Database; e-Stat Portal Site of Official Statistics of Japan, 2018 Housing and
Land Survey.
Australia and Canada offer tax-preferred savings opportunities for first-time buyers.12 Canada
also provides a tax credit for first-time buyers equal to 750 Canadian dollars, a tax exemption on
capital gains from a home sale, and relief for new homes subject to the Goods and Services Tax
(GST) and the Harmonized Sales Tax (HST).13 France provides exemptions from property and
capital gains taxes in certain cases. The United Kingdom provides an exemption from capital
gains tax on the sale of a primary residence in addition to relief from the Stamp Duty Land Tax
for first-time buyers. Germany differs from these other countries not only because of its rather

rate was lower at 57%.
11 See Table B-1 for a brief summary of all countries reviewed by a recent OECD study.
12 T he incentives discussed in this paragraph are national or federal provisions. See Table B-1 for a summary of
regional and local provisions offered in some countries.
13 Statistics Canada. T able 46-10-0036-0, “Housing indicators, by tenure including first -time homebuyer status,”
https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=4610003601.
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low homeownership rate, but because it currently offers no large-scale federal tax incentives for
homeowners.14
Although these data provide some perspective on where the United States stands relative to other
countries in terms of housing tax policy, determining the effect of countries’ policies on
homeownership is not a simple task. First and foremost, correlation does not imply causation.
Without more information and advanced statistical methods, it is difficult to isolate the influence
of a single policy. In some cases, data limitations make it difficult to determine the overal
homeownership policy of a country or measure it accurately. In other cases, some countries intend
to assist only certain types of potential owners (e.g., lower income), whereas other countries have
a more general approach. Final y, countries also differ in terms of their overal economies,
mortgage markets, history of military conflicts, demographics, geographic features, and social
policies that could have an influence on homeownership rates. The OECD has announced that it
wil be researching housing tax policies more carefully in forthcoming work.15
Analysis of the Rationale for Subsidizing
Homeownership
A number of possible rationales for subsidizing homeownership have been put forth. First, high
homeownership rates may bestow certain community benefits through higher neighboring
property values, lower crime, and higher civic participation, among others. Second,
homeownership may promote a more even distribution of income and wealth, as wel as establish
greater individual financial security. And lastly, homeownership may have a positive effect on
living conditions, which can lead to a healthier population. This section provides a review and
analysis of these rationales. The analysis presented here is distinct from the analysis of the
economic effects of the mortgage interest deduction, which is presented in the subsequent section.
Positive Externalities
Tax benefits for homeowners are most often rationalized on the basis that homeownership
generates positive externalities. Positive externalities, also known as spil over benefits, occur
when the actions of one individual benefit others in society. Because a given individual wil tend
to only consider his or her own (private) benefit from an activity, and not the total benefit to
society, too little of the positive-externality-generating activity is undertaken from society’s
perspective. Governments, however, may intervene through the use of taxes and subsidies to align
the interests of individuals with the interests of society to achieve a more economical y efficient
outcome.
An example of a positive externality, often cited by homeownership advocates, is the positive
effect ownership is believed to have on property values in a community. The theory is that
because homeowners have a larger financial stake in their homes than renters, they are more
likely to make investments that support or raise surrounding property values. For example, a
homeowner may be more inclined than a renter to paint the exterior of his or her home, fix a

14 For more information on Germany’s housing policy approach, see Alexander Reisenbichler, “A Rocky Path to
Homeownership: Why Germany Eliminated Large-Scale Subsidies for Homeowners,” Cityscape, vol. 18, no. 3 (2016),
pp. 283-290; and Michael Voigtländer, “ Why is the German Homeownership Rate so Low?” Housing Studies, vol. 24,
no. 24 (May 2009), pp. 355-372.
15 Organisation for Economic Co-operation and Development, Public Policies Towards Affordable Housing, PH2.2 Tax
Relief for Home Ownership, 2019, http://www.oecd.org/els/family/PH2-2-T ax-relief-for-home-ownership.pdf.
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hanging gutter, or remove street debris outside his or her house. Although the owner may only be
seeking to improve the appearance and resale value of the house, he or she is also positively
influencing the values of surrounding properties (the spil over effect).
There is a long list of other externalities that proponents claim homeownership generates.
Homeownership is believed by some to create neighborhood stability, because owners are more
inclined to remain in the community for a longer period of time than renters. Proponents also
associate homeownership with a greater degree of social and political involvement due to the
concern about one’s property value. Homeownership is also believed by some to lead to lower
neighborhood crime. It has also been suggested that homeownership fosters more responsible
behavior among youths in the community, such as higher academic achievement and lower teen
pregnancy rates, due to a “monitoring” mechanism put in place to maintain the attractiveness of a
community.
Economists have been able to establish that a correlation between homeownership and many of
these positive neighborhood effects does exist.16 For example, researchers have found that
homeowners are more likely than renters to belong to nonprofessional organizations, know the
head of their local school board and U.S. House Representative, vote in local elections, and
garden.17 Investigations into the effects of homeownership on the academic performance of
children have revealed statistical evidence of a positive relationship between homeownership and
the educational performance of homeowners’ children.18 Homeowners have also been found to
move less frequently than renters, which may promote neighborhood stability.19 And there is
some evidence that homeownership rates and surrounding property values are correlated.20
Research focusing on causality—that is, determining whether homeownership causes these
positive effects—has yielded mixed results.21 There are a number of reasons for this. First, there
may be observable differences between owners and renters that, when not accounted for, may
lead researchers to false conclusions. For example, it is important for researchers studying the
effect of homeownership on children’s educational outcomes to account for differences in net
worth, mobility, and home location, and not just whether a child’s parents are homeowners or
renters. This is because these other factors are likely strongly correlated with homeownership and
likely have their own independent influence on a child’s education. Thus, by not accounting for
these observable differences, researchers may attribute the influence of these other factors on a

16 For an accessible review of the literature on externalities and other potential social benefits, see William Rohe,
Shannon Van Zandt, and George McCarthy, “Social Benefits and Costs of Homeownership: A Critical Assessment of
the Research,” in The Affordable Housing Reader, ed. J. Rosie T ighe and Elizabeth J. Mueller, (New York, NY:
Routledge, 2013), pp. 196-210.
17 Denise DiPasquale and Edward Glaeser, “Incentive and Social Capital: Are Homeowners Better Citizens?” Journal
of Urban Econom ics, vol. 45, no. 2 (1999), pp. 354-384.
18 Richard Green and Michelle White, “Measuring the Benefits of Homeowning: Ef fects on Children,” Journal of
Urban Econom ics, vol. 41, no. 3 (1997), pp. 441-461; Donald R. Haurin, T oby L. Parcel, and R. Jean Haurin, “ Impact
of Homeownership on Child Outcomes,” in Low Income Homeownership: Examining the Unexamined Goal, ed.
Nicholas P. Retsinas and Eric S. Belsky (Washington, DC: Brookings Institution Press, 2002), pp. 427-446.
19 William Rohe and Leslie Stewart, “Homeownership and Neighborhood Stability,” Housing Policy Debate, vol. 7, no.
1 (1996), pp. 37-81.
20 Ibid.
21 For accessible reviews of the literature on causation, see N. Edward Coulson and Herman Li, “Measuring the
external benefits of homeownership,” Journal of Urban Economics, vol. 77 (September 2013), pp. 57-67; and Donald
R. Haurin, Robert D. Dietz, and Bruce A. Weinberg, “ T he Impact of Neighborhood Homeownership Rates: A Review
of the T heoretical and Empirical Literature,” Journal of Housing Research, vol. 13, no. 2 (2003), pp. 119-151.
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child’s educational outcome to homeownership, when in fact the relationship between children’s
educational outcomes and homeownership could be spurious (coincidental).22
Second, there may be unobservable differences that exist between homeowners and renters that
researchers may not be able to account for, which lead them to infer causality when it is not
present. For example, certain traits or attitudes may lead some people both to homeownership and
community activism. In theory, statistical methods can be employed to overcome the problem of
unobservable differences. These methods, however, are typical y only reliable if particular
assumptions hold. This limitation generates a great deal of debate among researchers as to
whether the assumptions hold, and therefore whether the reported results are reliable.
A third problem that researchers commonly face in determining causality is the possible existence
of an interaction between homeownership and the positive outcome policymakers wish to
promote. One example may be the claim that increased homeownership rates boost neighborhood
property values. Determining causality is difficult because homeowners may prefer to purchase
homes in neighborhoods where home values are rising. Statistical methods have been developed
to determine causation when such interdependence exists. Again, however, particular assumptions
must hold for these methods to produce reliable results, generating debate among researchers
about findings.
Which housing market and which program researchers are examining can matter. For example,
metropolitan real estate markets wil natural y be different than the markets in rural parts of the
country due to land constraints. But they wil also differ because of other factors such as
transportation systems, employment opportunities, and zoning laws, among others. The type of
homeownership program researchers are investigating to study causation can also be important. Is
the program targeting lower-income households or is it providing a general subsidy? Localized
studies or ones that examine targeted homeownership assistance programs may not be readily
generalizable for nationwide policymaking.
Because of these difficulties, a definitive answer as to whether homeownership produces the
purported externalities has eluded economists. This limitation, however, does not mean that
homeownership does not result in positive externalities that justify housing subsidies. But it could
be argued that determining whether to provide subsidies for homeownership depends on
establishing cause and effect. If homeownership does not generate the positive effects some
believe it does, then the economic justification for subsidization is diminished.
It has been even more difficult for researchers to determine the magnitude of the purported
benefits of homeownership. Without accurate estimates of how large the social benefits are from
homeownership, it is difficult to determine the amount of subsidization homeownership should
receive. If the social benefits associated with homeownership are smal , then the current amount
of subsidization (both tax and nontax), which some economists view as substantial, could have
the unintended consequence of decreasing, not increasing, economic efficiency. This outcome is
especial y true if the social returns to other investments, such as education and sectors of the
economy outside of housing, are higher than the return to homeownership. In such a situation,
reducing housing subsidies would free up resources for these more social y valuable investments.

22 T he statistical terminology that is used for this type of estimation error is omitted variable bias. When important
variables are omitted from an analysis, the estimates of the importance of the variables that are included in the analysis
may be biased or over/understated. Not accounting for observable differences may be due to data limitations. For
example, a survey that collects information on homeownership status and children’s educational attainment may not
collect information on household wealth. So although wealth is observable, it cannot be controlled for because it i s not
a focus of the survey being used.
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Often absent from the debate over the existence of positive externalities is the possibility that
homeownership results in negative externalities. Negative externalities occur when the actions of
one individual impose a cost on others in society. On the one hand, a higher concentration of
homeowners may result in increased property values. On the other hand, the opposite may be true
at times. If enough homeowners in a given community default and are foreclosed upon, the effect
could be to reduce the value of surrounding properties in the neighborhood. This, in turn, could
lead to more defaults and foreclosures, which reinforces the downward pressure on surrounding
home values. In effect, the community’s “portfolio” of homeowners and renters is undiversified,
so that a negative economic shock to a smal group of homeowners can be transmitted to a larger
group.
Homeownership may also result in less-than-desirable social and community involvement.23 The
same incentive that is believed to lead homeowners to make investments that raise surrounding
property values—mainly homeowners’ financial stake in their property—may also lead
homeowners to push for local initiatives that exclude certain groups of people from their
communities. Zoning restrictions, for example, may be supported by homeowners if restrictions
prevent the construction of low-income rental housing that homeowners fear could impact their
property values.
Even if the positive externalities outweigh the negative externalities, economic theory stil
suggests that subsidizing homeownership to generate social y desirable outcomes may not be the
most efficient remedy. If landscaping, painting, and other exterior investments increase
surrounding properties’ values, it is not clear why subsidizing homeownership to generate this
result is the ideal method. Theories of public finance and externalities suggest that a more
efficient policy would be to subsidize the externality-generating activity directly. The government
could offer a tax credit, deduction, or voucher for painting or landscaping one’s house, for
example. Renters and owners alike could then benefit from the incentive while producing the
desired result—higher property values from more aesthetical y pleasing neighborhoods. Directly
subsidizing social y beneficial investment in one’s home could also be more cost effective than
indirect subsidization via homeownership incentives.
Financial Benefits
Some contend that homeownership promotes economic equality. Data reveal that homeowners
typical y earn higher incomes and have higher net worths than renters.24 In general, homeowners
also have greater access to wealth via their home’s equity, which can be used to finance
discretionary and emergency spending. In addition, homeowners may have greater access to
credit to borrow for such things as a child’s education, which can increase the child’s income,
and, in turn, increase his or her ability to become a homeowner. Thus, because of these possible
positive correlations, promoting ownership may be a tool used to achieve a more even
distribution of income and wealth within and across generations.
Again, economists confront the issue of distinguishing causation from correlation. Does
homeownership positively influence one’s income and wealth, or is the relationship reversed, and
higher-income and wealthier households are more inclined to become homeowners because they

23 See William Rohe, Shannon Van Zandt, and George McCarthy, “Social Benefits and Costs of Homeownership: A
Critical Assessment of the Research,” in The Affordable Housing Reader, ed. J. Rosie T ighe and Elizabeth J. Mueller,
(New York, NY: Routledge, 2013), pp. 196 -210.
24 For data on housing tenure status and net worth (excluding home equity), see U.S. Census Bureau, “Survey of
Income and Program Participation, 2014 Panel, Wave 4 .” For data on housing tenure status and income, see U.S.
Census Bureau, “ American Housing Survey, 2017.”
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have the resources to do so? Likewise, there may be some intergenerational wealth transmission
mechanism that homeownership helps facilitate, but it could also be that higher-income and
wealthier households, regardless of ownership status, have the financial means to invest more in
their children’s education. If this is the case, more effective investment in education may be a
more economical y efficient way to achieve equitable distributions of income and wealth, and
could be funded by repealing subsidies targeted toward homeowners.
Are Renters “Throwing Money Away”?
There is a perception among some renters that they are just “throwing money away,” or transferring money for
shelter to landlords that, if the renters were homeowners, would al ow them to build equity. Whether owning is
better than renting, from a purely financial perspective, depends on a number of circumstances, such as home
prices, rental rates, interest rates, and how long one plans to remain in the same home. It is also crucial to
understand the economic nature of a home and what it provides renters compared to what it provides owners.
A home is unique from most other items individuals purchase, because it is a combination of two different things.
First, it is a consumption good that provides its occupants with housing services, such as a place to eat, sleep, and
relax. Second, a home is an investment asset, which, like other investments, can either increase or decrease in
value depending on market conditions.
The rental payments on a home wil often be cheaper than the payments on a new mortgage for a comparable
property. One reason for this is because a renter is only paying for the service component of the home; a renter
does not stand to gain if the home increases in value, just as they are not at risk if the home decreases in value.
Another reason is because landlords are likely to have been repaying the mortgage for a number of years. Thus,
rents do not need to be as high as to cover a new mortgage.
Looked at from another perspective, a renter is not “throwing away” money any more than a new homeowner is
with the interest portion of their mortgage payment. For approximately the first 15 years of a 30 -year fixed rate
mortgage, the majority of an owner’s mortgage payment goes toward interest costs, which provide no financial
benefit to the owner; they are strictly compensation paid to the lender for lending the money to buy a house.
Factor in the costs of maintaining a property and the fact that younger (first-time) buyers often move within 10
years, which results in transactions costs (realtor fees and closing costs), and renting can be a wise financial
decision under the right circumstances, just as owning can be the right financial decision under the right
circumstances.25
Homeownership is also often viewed as a way to promote the accumulation of an individual nest
egg. As long as home prices are stable or increasing, a homeowner, as opposed to a renter,
automatical y builds his or her net wealth (equity) with each successive mortgage payment.26
Home equity can be used to make improvements to the house, finance college expenses, or be
converted into income for retirement later in life, among other things.27 Homeownership also
provides an opportunity to build or improve credit scores. As a result, a homeowner may have
access to cheaper credit than a renter.
Encouraging homeownership as a means of saving carries with it certain risks that policymakers
and potential homeowners may want to consider. First, it is not clear that the financial return to
homeownership is as high or as predictable as some believe. There is evidence that returns to
homeownership are, on average, lower for lower-income and minority owners, who are often the

25 National Association of Realtors, 2019 Home Buyers and Sellers Generational Trends Report, April 2019, p. 44,
https://www.nar.realtor/research-and-statistics/research-reports/home-buyer-and-seller-generational-trends.
26 A homeowner’s equity is equal to the market price of their home minus their outstanding mortgage balance.
Conceptually, a homeowner’s equity is how much money they would receive if they sold their home and paid off any
outstanding mortgage debt.
27 T he conversion of equity to income for retirement is often carried out using a “reverse mortgage.” For more
information, see CRS Report R44128, HUD’s Reverse Mortgage Insurance Program : Hom e Equity Conversion
Mortgages, by Libby Perl.
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groups housing advocates strive to help.28 Though there is some past evidence that homes in
lower-income markets may experience greater home appreciation relative to homes in higher-
income markets, it is not clear whether this evidence stil holds in the era following the Great
Recession.29 Additional y, there is evidence that lower-income households are less likely than
higher-income households to claim the mortgage interest and property tax deductions, are more
likely to pay higher mortgage interest rates, and spend less on maintaining their homes—al
behaviors which should lower their return to homeownership.30 There are also differences across
regional markets that should be taken into account with a home that are not present with other
assets. Like al investments, the financial return to homeownership depends on market conditions
at the time the home is bought and sold and the expected return from alternative investments.
Instead of purchasing a home, an individual could invest down-payment funds in financial
instruments, such as stocks and bonds.
Second, policies that promote homeownership may result in households holding relatively
undiversified portfolios. To minimize risk, economists say households should hold a portfolio
containing a wide range of assets. Returns should not be too closely related, so that as the return
to some assets in the portfolio fal s, others assets’ returns rise. A home, however, is an inherently
large and practical y indivisible asset. For most homeowners, their house is typical y the largest
asset in their portfolio. Committing such a large fraction of one’s portfolio to a single asset can
complicate diversification.
Also complicating diversification is the combination of a home with an individual’s other largest
asset, his or her human capital, the return to which is labor income (i.e., wages). The housing
boom and bust that preceded the Great Recession showed that the return to housing and the labor
income of some workers may be closely correlated. Areas with high unemployment also suffered
high foreclosure rates, which had a downward reinforcing effect on home prices. Thus, from a
portfolio perspective, homeownership may not be a financial y prudent decision for al
Americans.
Third, unlike most other assets in the typical household’s portfolio, a home purchase is often
financed using a substantial amount of debt. This increases the homeowner’s exposure to
fluctuations in home prices, because mortgage debt amplifies changes in an owner’s equity in
response to a given price change. If prices fal enough, an individual can end up owing more on
their house than it is worth—a scenario referred to as having negative equity, or being
“underwater” on the mortgage. Sel ing a house also requires the owner to incur significant
transaction costs, implying that a house is an il iquid asset, which further increases risk.
Psychological and Physical Health Benefits
It is possible that homeownership bestows certain benefits exclusively to individual homeowners,
including improved psychological wel -being. The pride associated with owning one’s home
could lead to higher levels of self-esteem and overal life satisfaction. Self-esteem and satisfaction
could also be lifted by the pleasure one takes in maintaining and improving his or her property.
Homeownership could also promote a sense of individual security, stability, and control, leading

28 T om Mayock and Rachel Spritzer Malacrida, “Socioeconomic and racial disparities in the financial returns to
homeownership,” Regional Science and Urban Economics, vol. 70 (2018), pp. 80-96.
29 See, for example, Nicolas P. Retsinas and Eric S. Belsky, ed., Low-Income Homeownership: Examining the
Unexam ined Goal, (Brookings Institution Press, 2002), pp. 208-256.
30 Eric S. Belsky, Nicolas P. Retsinas, and Mark Duda, The Financial Returns to Low-Income Homeownership, Joint
Center for Housing Studies of Harvard University, Cambridge, MA, September 2005.
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to less stress than being a renter. For some, the greater space associated with homeownership
provides solace and, perhaps, some protection in the face of Coronavirus Disease 2019 (COVID-
19).
Yet, as the housing downturn surrounding the Great Recession and the general angst associated
with the COVID-19 pandemic have made clear, homeownership can also produce the opposite
feelings if it becomes a struggle to make mortgage payments. A similar type of distress may be
experienced by those who own property destroyed by natural disasters.31
In addition to the psychological benefits, some also point to the possible physical health benefits
associated with homeownership.32 Homeownership may provide higher-quality living conditions
that lead owners to be, in general, physical y healthier than renters. Homeownership may also
al ow households to better cope with unforeseen health events by al owing homeowners to draw
on their home’s equity when faced with unexpected health costs. Nevertheless, how exactly
homeownership impacts health outcomes has not been answered by researchers.
Researchers studying the psychological and health benefits of homeownership have encountered
the same problems as those studying homeownership externalities—primarily, distinguishing
causation from correlation.33 Additional y, if homeownership produces benefits that accrue to
individual homeowners and not more broadly to society, then widespread homeownership subsidy
programs may be unwarranted. Economic theory general y predicts that when only private
benefits exist (i.e., there are no externalities), the market wil tend to al ocate resources most
efficiently. At the same time, one could argue that individual health and wel -being are
fundamental features of a prosperous society, and if owning a home contributes to one’s health,
society should subsidize homeownership.
Economic Analysis of the Deduction
When weighing subsidies for homeowners, policymakers may consider not only the economic
effects of homeownership, but also the effects of the mortgage interest deduction on housing
decisions and the economy more broadly. In particular, does the mortgage interest deduction
increase homeownership, as some argue? How does the deduction affect other dimensions of
homeownership, such as the quality and size of homes taxpayers purchase? And how does
subsidizing owner-occupied housing affect the performance of the overal economy? This section
analyzes these questions in turn.
Effect on Homeownership
To have a significant impact on the homeownership rate, housing subsidies must address the
barriers that households that are on the verge of homeownership face. Economists have identified

31 T he impact of homeownership on mental health is likely situational and does not necessarily have to be positive or
negative. Homeownership could have no meaningful impact on mental health for certain individua ls or groups. See
Emma Baker, Rebecca Bentley, and Kate Mason, “T he Mental Health Effects of Housing T enure: Causal or
Compositional?” Urban Studies, vol. 50, no. 2 (February 2013), pp. 426-442.
32 See William Rohe, Shannon Van Zandt, and George McCarthy, “Social Benefits and Costs of Homeownership,” in
Low-Incom e Hom eownership, ed. Nicolas P. Retsinas and Eric S. Belsky (Washington, DC: Brookings Institution
Press, 2002), pp. 388-390; and Lawrence Yun and Nadia Evangelou, “ T he Social Benefits of Homeownership and
Stable Housing,” T he Journal of T he Center for Real Estate Studies, vol. 5, no. 1 (December 2016), pp. 5 -19.
33 Peter H. Rossi and Eleanor Weber, “T he Social Benefits of Homeownerships: Empirical Evidence from National
Surveys,” Housing Policy Debate, vol. 7, no. 1 (1996), pp. 1-35.
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the high transaction costs associated with a home purchase—mostly resulting from the down-
payment requirement, but also closing costs—as the primary barrier to homeownership.34
Household income has also been found to influence the home-buying decision, although its effect
on the decision to become a homeowner is smal er than the ability to finance a down payment.
This finding is likely because those seriously considering making the transition from renting to
ownership already have income that is sufficient to cover mortgage payments, as demonstrated by
their ability to pay rent.
Because the mortgage interest deduction does not lower the primary barrier to homeownership, its
effect on the homeownership rate may be smal . Though the deduction lowers the annual cost of
homeownership, it does not provide any upfront benefit that can assist in completing a home
purchase. Instead, the deduction enables homeowners to have a greater after-tax income than they
would otherwise. This may have an important effect on another aspect of homeownership,
particularly the size of homes taxpayers purchase. In contrast, the ability of buyers to obtain
private mortgages that are insured by the Federal Housing Administration (FHA) may have a
more meaningful impact on homeownership because an FHA-insured mortgage can lower the
required down payment to as low as 3.5% of the purchase price.35 A similar option is available to
veterans via the U.S. Department of Veterans Affairs’ (VA) Loan Guaranty Program, which
enables qualifying veterans to obtain private mortgages with zero down payment.36
The deduction’s effect on homeownership is also likely limited because it is not wel targeted
toward the group of potential homebuyers most in need of assistance—lower-income households.
This group includes younger potential first-time buyers, who have difficulty accumulating funds
for a down payment. Homeowners must itemize their deductions when filing their tax returns to
benefit from the deduction. Historical y, lower-income households have itemized their tax returns
at an extremely low rate. The itemization rate among al households is currently much lower than
in the past (10.9% in 2018 compared to 30.6% in 2017) due to the TCJA (P.L. 115-97), which
nearly doubled the standard deduction.37 This has caused the number of itemizing households to
become more concentrated at the upper end of the income distribution than in the past. Thus,
fewer households benefit from the mortgage interest deduction, and even fewer lower-income
households do so.
Even before the TCJA reduced the itemization rate, not al homeowners claimed the mortgage
interest deduction. Some homeowners have no mortgage, and hence no interest to deduct. Those
with a mortgage who did not claim the deduction likely did not claim it because (1) they were

34 See, for example, Laurie Goodman, et al., Barriers to Accessing Homeownership: Down Payment, Credit, and
Affordability, Urban Institute, September 2018; Peter D. Linneman and Susan M. Wachter, “ T he Impacts of Borrowing
Constraints,” Journal of the Am erican Real Estate and Urban Econom ics Association , vol. 17, no. 4 (Winter 1989), pp.
389-402; Donald R. Haurin, Patrick H. Hendershott, and Susan M. Wachter, “ Borrowing Constraints and the T enure
Choice of Young Households,” Journal of Housing Research, vol. 8, no. 2 (1997), pp. 137-154; and Mathew
Chambers, Carlos Garriga, and Donald Schlagenhauf, “ Accounting for Changes in the Homeownership Rate,”
International Econom ic Review, vol. 50, no. 3 (August 2009), pp. 677 -726.
35 For more on FHA-insured mortgages, see CRS Report RS20530, FHA-Insured Home Loans: An Overview, by Katie
Jones.
36 For more information on the VA Loan Guaranty Program, see CRS Report R42504, VA Housing: Guaranteed Loans,
Direct Loans, and Specially Adapted Housing Grants, by Libby Perl.
37 Internal Revenue Service, “Statistics of Income Division, Publication 1304,” T able 1.2, September 2019,
https://www.irs.gov/pub/irs-soi/17in12ms.xls; and T ax Policy Center, “ T18-0001 - Impact on the Number of Itemizers
of H.R.1, T he T ax Cuts and Jobs Act (T CJA), By Expanded Cash Income Level, 2018 ,” January 11, 2018,
https://www.taxpolicycenter.org/model-estimates/impact-itemized-deductions-tax-cuts-and-jobs-act-jan-2018/t18-
0001-impact -number.

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toward the end of their mortgage payments, so that the deduction was not worth much; (2) they
lived in a state with low state and local taxes and thus claimed the standard deduction; or (3) they
lived in a low-cost area and therefore had a relatively smal mortgage.
In the end, determining the mortgage interest deduction’s effect on the homeownership rate is an
empirical question. Researchers may be able to exploit recent changes made by the TCJA to
isolate the deduction’s effect on homeownership, but it wil likely be a few years before they can
do so because of lags in data releases and the fact that discernable changes to the homeownership
rate may take time to occur. Some early empirical research that looked at homeownership from
1944 to 1974 suggested that the mortgage interest deduction positively impacted the
homeownership rate; however, subsequent empirical research cal ed those findings into
question.38 More recent quantitative theoretical modeling has suggested that removing the
deduction could increase the homeownership rate. The results of these models stem from a
number of plausible changes in the economy that could occur in response to removal of the
deduction. Specifical y, rents could increase as renting initial y becomes more attractive;
mortgage rates could decrease as households save for larger down payments; Congress may
reduce marginal tax rates, assuming the policy change is revenue neutral; and home prices could
decrease to the extent that the deduction is capitalized, or priced, into home prices.39
Effect on Housing Consumption
The mortgage interest deduction may influence the size of homes that buyers purchase in addition
to, or instead of, increasing homeownership. The deduction increases the after-tax income of
households who claim it, al owing these owners to afford a larger mortgage payment, which can
be used to purchase a larger home. In essence, the mortgage interest deduction lowers the
effective annual price of homeownership, and the law of demand states that individuals wil tend
to consume more of a good or service when its price fal s. Because the deduction does not lower
the down-payment barrier, the other dimension across which housing consumption can increase is
home size.
The degree to which the mortgage interest deduction is capitalized into home prices, however,
would limit its effect on housing consumption. The ability to afford a larger mortgage because of
the deduction does not necessarily mean that larger mortgages are being used to finance larger
homes; it could be that larger mortgages are being used to finance homes with prices that have
been bid up higher than they would have been otherwise. In theory, the disincentive provided by
higher prices to purchase more home could be such that it exactly offsets the incentive provided
by the deduction. In this case, there would be no effect on housing consumption.
If tax policy does affect home size, it may also affect land use, energy use, and transportation.
Larger homes general y require more land on which to be built, which, in densely populated
areas, is typical y found the farthest away from employment opportunities. The increased
commuting distance may lead to greater carbon emissions. Traffic congestion may also increase if
the transportation infrastructure is not enhanced to support the transition outward. And if

38 Harvey S. Rosen and Kenneth T . Rosen, “Federal T axes and Homeownership: Evidence from T ime Series,” The
Journal of Political Econom y, vol. 88, no. 1 (February 1980), pp. 59 -75; and Edward Glaeser and Jesse Sharpiro, “ T he
Benefits of the Home Mortgage Interest Deduction,” Tax Policy and the Economy, vol. 17 (2003), pp. 37-82.
39 Kamila Sommer and Paul Sullivan, “Implications of US T ax Policy for House Prices, Rents,” American Economic
Review, vol. 108, no. 2 (February 2018), pp. 241-274; and Matthew Chambers, Matthew Chambers, and Don
Schlagenhauf, “Housing Policy and the Progressivity of Income T axation,” Journal of Monetary Economics, vol. 56,
no. 8 (November 2009), pp. 1116-1134.
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taxpayers are building homes larger than they would otherwise, energy use may also increase, as
larger homes general y require more energy to heat and cool.
Looking back, the mortgage interest deduction may have exerted a larger effect on housing
consumption (both the homeownership rate and the size of homes) during the housing boom
preceding the Great Recession than it historical y has. Some homebuyers used mortgage products
that required very low or interest-only payments, such as an interest-only adjustable rate
mortgage (ARM). When home prices are rising and interest rates are low, these products can be
attractive because the homeowner can refinance into a traditional mortgage before the interest-
only period is over. They can also be attractive because the whole interest payment can be
deducted due to the mortgage interest deduction, which frees up income for a larger mortgage
payment. Yet home prices do not always rise. Some of these borrowers were unable to refinance,
because prices fel to the point that their homes were worth less than what they owed in mortgage
debt.
Effects on the Economy
Whether the mortgage interest deduction has positive or negative effects on the economy depends
on a number of factors. To have a net positive effect on the economy, it is necessary that the
deduction increases homeownership and that homeownership generates positive externalities,
such as those discussed previously.40 If this occurs, the deduction can assist in directing more
capital and labor to the housing sector, where it would be expected to generate a higher social
return and increase economic efficiency. There is some skepticism among economists, however,
that the mortgage interest deduction impacts the homeownership rate. In that case, improving the
economy by capturing the positive externalities generated by homeownership, to the extent they
exist, would more likely be accomplished through more effective homeownership promotion
policies.
Even when the economy is performing wel , the mortgage interest deduction could potential y be
inhibiting the economy’s long-run performance. If there are no externalities or market failures
associated with homeownership, then providing preferential tax treatment to homeowners causes
capital and labor to be diverted away from more productive uses in the nonhousing sectors of the
economy. The same result occurs if homeownership produces externalities, but the level of
subsidization is greater than the external benefits produced. Although homeownership is often
claimed to generate positive externalities, such benefits have not been definitively measured; nor
is there necessarily reason to believe that they justify such significant subsidies. Reducing the
amount of tax preferences available to homeowners could also improve the economy’s
performance through its impact on the budget by requiring less reliance on deficits to finance
spending. Large and persistent deficits can eventual y lead to higher interest rates, which can
result in lower rates of capital formation, a critical source of economic growth.
Even if the mortgage interest deduction increases homeownership, there may be adverse
consequence for the economy in the short run if it weakens. Most economic recoveries are
characterized by an elevated unemployment rate. The more quickly workers can transition from
the weaker sectors of the economy to the stronger sectors, the more quickly the economy can
recover. Homeownership can slow this transition because it reduces the ability of workers to
move. For example, if a specific region is hit particularly hard by a downturn, then unemployed
homeowners may first have to sel their houses in order to accept a job somewhere else in the

40 A positive net return requires that the resources directed toward housing as a result of the deduction could not have
been more productively deployed elsewhere in the economy. T hat is, the net return accounts for the opportunity cost of
resources.
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country. This may be infeasible if the worker is unable or unwil ing to sel his or her home. A
renter, however, would at most be required to pay the remaining rent on a lease before moving
and could therefore be expected to transition to another form of employment or location more
quickly than a homeowner.
A combination of mortgage market innovations, loose lending standards, low interest rates, and
market psychology appears to have been the primary driver of the run-up in home prices that
preceded the 2007-2008 financial crisis and ensuing Great Recession. But housing tax policy may
have reinforced these factors, making the economic expansion and subsequent contraction more
acute than it otherwise would have been. For example, the ability to deduct the interest on exotic
mortgage products and, separately, the interest on home equity loans may have reinforced the
ability to withdraw equity to increase housing-related and non-housing-related consumption.
More homeowners and larger home purchases required increasing levels of capital and labor from
other areas of the economy. In 2005, The Economist estimated that housing-related sectors were
responsible for over 40% of al private-sector jobs created since 2001.41
Looking Toward 2025
Absent any legislative changes, the temporary modifications to the mortgage interest deduction
limits enacted by the TCJA (P.L. 115-97) wil expire after 2025. In addition to extending these
temporary changes or al owing them to expire, Congress could choose to pursue a number of
other options that have historical y been part of the debate over the mortgage interest deduction.
Eliminate the Deduction
One possible option would be to eliminate the mortgage interest deduction, either abruptly or
gradual y over time. If elimination of the deduction were gradual y phased in, any negative
consequences for the economy and housing market could potential y be mitigated. Housing
researchers Steven Bourassa and Wil iam Grigsby propose eliminating the deduction over a 15- to
20-year period with a fixed date after which the deduction would no longer be available.42 For
example, if January 1, 2026, were chosen as the date at which the elimination would be phased in,
taxpayers who bought a home in 2026 could claim the deductions for 20 years, buyers in 2027
could claim the deduction for 19 years, and so on. The phase-in would work in the same manner
if it were to occur over a longer period, say 30 years. Bourassa and Grigsby postulate that there
would be no effect on home demand or prices, although no modeling is done to complement their
proposal. It is possible that gradual y eliminating the deduction could simply delay the negative
short-term consequences for the economy and housing market. This could happen if households
do not anticipate the full effects of the deductions’ elimination until closer to the chosen cutoff
date.
Further Limit the Deduction
Continuing in the same direction as TCJA, the deduction could be further limited. For example,
the combined maximum mortgage limit could be reduced. Additional y, the ability to deduct

41 “T he Global Housing Boom,” The Economist, June 18, 2005, p. 66.
42 T his idea was proposed by economists Steven Bourassa and William Grigsby. See Steven C. Bourassa and William
G. Grigsby, “Income T ax Concessions for Owner-Occupied,” Housing Policy Debate, vol. 11, no. 3 (2000), pp. 521-
546.

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interest on second homes could be eliminated. Another option would be to leave the combined
mortgage limits unchanged, but limit the amount of interest that could be deducted. For example,
the deduction could be modified so that the maximum tax rate that applied when claiming the
deduction would be no higher than 22%. The deduction could also be limited to those
homeowners below a certain income threshold. Currently, the deduction is available to
homeowners of al income limits, although after 2025 there are some restrictions based on income
as a result of an overal limitation on the amount of itemized deductions (the “Pease limitation”).
Replace the Deduction with a Credit
The mortgage interest deduction could be replaced with a tax credit. The deduction currently
tends to provide a proportional y bigger benefit in terms of tax savings to higher-income
homeowners, because they buy more expensive homes and are subject to higher marginal tax
rates. The requirement that homeowners itemize their deductions on their tax returns also limits
the number of owners who receive the tax benefit. A tax credit for mortgage interest could
provide a benefit to more homeowners because itemization would no longer be required.
Depending on the credit’s design, it could create a more consistent rate of subsidization across
homeowners. Making the tax credit refundable would serve to make it better targeted to lower-
income homeowners.
Refundable credits, as opposed to nonrefundable credits, can reduce an individual’s tax liability
below zero. This means that the ability to benefit from a refundable credit is not limited by the
extent to which an individual owes taxes, which lower-income households may not. For example,
if a lower-income household were to have a $500 income tax liability, but also have a $1,500
refundable tax credit, the credit would reduce their tax liability to zero and they would receive the
remaining value of the tax credit ($1,000) as a refund from Treasury. In contrast, if the tax credit
were nonrefundable, the household could use the $1,500 tax credit to reduce their tax liability to
zero, but would not receive any additional benefit.
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Appendix A. Other Tax and Nontax Benefits
Exclusion of Capital Gains
The exclusion of capital gains from the sale of a principal residence, and not the mortgage interest
deduction, is currently the largest tax benefit available to homeowners. A capital gain is realized
when the sales price of a home exceeds the original cost of the home plus improvements. In
general, a capital gain on the sale of a principal residence of up to $250,000 for single taxpayers,
and $500,000 for married taxpayers filing jointly, may be excluded from taxable income. The
capital gains exclusion likely has a rather smal , if any, effect on the homeownership rate. This is
due to the fact that the exclusion’s benefit cannot be realized until a taxpayer sel s a house, but
the main barrier to homeownership is the upfront down payment. The tax treatment of capital
gains on housing may have important effects on other aspects of the economy, such as the
al ocation of capital and the mobility of workers. The JCT has estimated that the exclusion will
cost the federal government $37.4 bil ion annual y in foregone revenue between 2019 and 2023.43
Deduction of Property Taxes
Certain homeowners also benefit from the ability to deduct state and local property taxes.
Homeowners who itemize their tax deductions, rather than claim the standard deduction, are
al owed a deduction for state and local taxes (SALT) paid up to $10,000.44 The SALT deduction
and the associated limit applies to the combined amount of state and local income taxes, as wel
as property taxes. The $10,000 limit is relatively new and was enacted as part of the TCJA
starting in 2018. It is set to expire after 2025, at which point, barring legislative action, the SALT
deduction wil revert to prior law, which general y al owed a taxpayer to deduct the full amount
of state and local income and property taxes paid.
Smaller or Temporary Tax Benefits
The exemption for interest on mortgage revenue bonds (MRBs) is a relatively smal tax incentive
benefiting owner-occupied housing. The exemption al ows MRBs to finance below-market-rate
mortgages for potential homebuyers who meet certain criteria.
Two other tax benefits stemming from the Great Recession have been extended a number of
times, including most recently through 2020 by the Further Consolidated Appropriations Act,
2020 (P.L. 116-94). The first is the deduction for qualified mortgage insurance premiums.
Lenders often require mortgage borrowers to obtain insurance to protect the lender against the
borrower defaulting on the loan. Al owing homeowners to deduct the premiums paid on this
insurance lowers the cost of homeownership. The deduction first became available in 2007 as a
result of the Tax Relief and Health Care Act of 2006 (P.L. 109-432).
The second benefit is exclusion of forgiven mortgage debt. Historical y, when an individual is
granted debt forgiveness by a lender—be it credit card debt, a car loan, etc.—they must include
the forgiven debt as part of their taxable income. The provision al ows qualified homeowners to
exclude forgiven mortgage income from their taxable income. The exclusion first became

43 CRS calculations using estimates reported in U.S. Congress, Joint Committee on T axation, Estimates of Federal Tax
Expenditures for Fiscal Years 2019-2023, 116th Cong., 1st sess., December 18, 2019, JCX-55-19.
44 For more information, see CRS Report R46246, The SALT Cap: Overview and Analysis, by Grant A. Driessen and
Joseph S. Hughes.
Congressional Research Service
18

An Economic Analysis of the Mortgage Interest Deduction

available with the enactment of the Mortgage Forgiveness Debt Relief Act of 2007 (P.L. 110-
142), which was enacted in response to elevated mortgage default rates.
Imputed Rental Income
A rather abstract tax benefit that homeowners receive, but one which is wel known in the
academic community, is the exclusion of imputed rental income. The exclusion is not in statute
and, therefore, there is no official revenue score. To understand imputed rental income, consider
that a homeowner is effectively both a rental property owner and a tenant (renter)—they own a
home which they choose to rent to themselves instead of to someone else. Economic theories of
taxation suggest that homeowners and rental property owners should therefore be taxed similarly.
Currently, they are not. Rental property owners are taxed on their net rental income, which is their
rental income after deducting the costs they incur in generating this income—mainly mortgage
interest, taxes, insurance, maintenance, and depreciation. Homeowners, however, are al owed to
deduct mortgage interest and taxes without having to pay taxes on the “rent” they pay themselves.
This creates an asymmetry in the tax treatment of (imputed) income, which is not taxed, and the
costs of a mortgage and taxes, which are stil deductible. Thus, in this regard, owner-occupied
housing is subsidized relative to rental housing.
Non-Tax-Related Benefits
In addition to the numerous tax benefits that exist for homeowners, there are also a number of
non-tax-related programs that either directly or indirectly assist homeowners. For example,
homeownership is also subsidized through federal programs that insure lenders against losses on
home loans, which lowers the down payment homebuyers must make and can make mortgages
more affordable (FHA, VA, and USDA); through certain federal or federal y chartered financial
institutions that assist in maintaining a viable secondary market for mortgages, which enables
mortgage financing to be more readily available (Fannie Mae, Freddie Mac, and Ginnie Mae); by
the favorable treatment of certain lending institutions that provide liquidity to make home loans
(Federal Home Loan Banks); by establishing a program within HUD that funds agencies that
counsel prospective buyers on becoming homeowners and current homeowners on avoiding
foreclose, as wel as providing other types of housing counseling; and by funding grant programs
that can be used to provide down payment and closing cost assistance to some homebuyers.45

45 For more information about these programs, see the following reports: CRS Report R42995, An Overview of the
Housing Finance System in the United States, by N. Eric Weiss and Katie Jones; CRS Report RS20530, FHA-Insured
Hom e Loans: An Overview, by Katie Jones; CRS Report R42504, VA Housing: Guaranteed Loans, Direct Loans, and
Specially Adapted Housing Grants, by Libby Perl; and CRS Report RL34591, Overview of Federal Housing Assistance
Program s and Policy, by Maggie McCarty, Libby Perl, and Katie Jones.
Congressional Research Service
19

link to page 37 link to page 37
Appendix B. Tax Relief Supporting Homeownership in Select Countries, 2019
Table B-1. Overview of Tax Relief Supporting Homeownership in Select Countries, 2019
Responsible
Income
administration
Country
Measure name
Description
threshold
Other eligibility criteria
Type of aid
level
Australia
First Home Saver
The First Home Super Saver Scheme (FHSSS)
No
First-time buyer holding a
Preferential
National/Federal
Scheme (Australian
aims to help first-home buyers boost their
First Home Savers account
taxation of
Government)
savings for a first home purchase by al owing
savings
them to build a deposit inside their
superannuation, by making additional voluntary
contributions to their superannuation account.
Australiaa
First Home - First
The scheme provides first-home buyers in New
No
First-time buyer. Must
One-off tax
Regional/State
Home Buyer
South Wales with exemptions from transfer
occupy the home within 12
relief for
Assistance Scheme
duty on new and existing homes valued up to
months and live in the home
home buyers
(New South Wales
AUD 650,000, and sliding-scale concessions for
for a continuous period of at
Government)
up to AUD 800,000.
least 6 months.
Corresponding provisions are available for
residential land purchase up to AUD 350,000
and for between AUD 350,000 and AUD
450,000.
Austria
Tax relief
Tax deduction of mortgage interest payments
Yes
Conditions related to the
Tax relief for
National/Federal
Topfsonderausgaben
and of expenses incurred for the construction
dwel ing size/value
mortgage
or regeneration of housing
payments
Belgiumb
Integrated housing
The three systems relating to tax credits for
No
It applies to mortgage loans
Tax relief for
Regional/State
bonus tax system
owner-occupied housing (regional housing
raised as from January 2016.
mortgage
(Geïntegreerde
bonus, tax credit for long-term savings, and tax
Prior to this date, the
payments
Woonbonus) (Flemish
credit for standard interest) have been grouped
previous housing bonus
region)
together in one system: the integrated housing
system is applicable.
bonus.
CRS-20

link to page 37 link to page 37
Responsible
Income
administration
Country
Measure name
Description
threshold
Other eligibility criteria
Type of aid
level
Belgiumb
Housing cheque
Mortgage loans raised as from 1 January 2016 to
Yes
Conditions related to the
One-off tax
Regional/State
(Chèque habitat)
acquire owner-occupied housing are entitled to
dwel ing size/value
relief for
(Wal oon region)
the “Chèque-Habitat” tax credit in the Wal oon
home buyers
Region. The basic amount of the tax credit
depends on the taxpayer’s net taxable income
and household composition.
Belgiumb
Regional housing
The regional housing bonus applies to interest
No
The regional housing bonus
Tax relief for
Regional/State
bonus
on loans, capital repayments, or life insurance
was applicable for loans
mortgage
(Bonus logement
premiums assigned to the reinstatement of the
contracted in 2015 and 2016. payments
régional)
mortgage loans and outstanding balance
insurance premiums. (NB: The regional housing
bonus has been abolished.)
Canada
First-Time Home
Nonrefundable federal tax credit, up to CAD
No
First-time home buyer
One-off tax
National/Federal
Buyers’ Tax Credit
750
relief for
home buyers
Canada
Home Buyers’ Plan
The Home Buyers’ Plan (HBP) assists first-time
No
Reserved for first-time
Preferential
National/Federal
home buyers by al owing them to withdraw up
buyers, with some
taxation of
to CAD 25,000 from a Registered Retirement
exceptions (persons with a
savings
Savings Plan (RRSP) to purchase or build a
disability or their relatives
home. Unlike ordinary RRSP withdrawals, HBP
buying or building a qualifying
withdrawals are not included in income for tax
home).
purposes. Amounts withdrawn must be repaid
within a 15-year period.
Canada
GST/HST New
Tax rebate available for new homes, materials to
No
The dwel ing fair market
One-off tax
National/Federal
Housing Rebate
build homes, and certain renovations
value at the time of purchase
relief for
or upon completion of the
home buyers
renovations cannot exceed
CAD 450,000. If the rebate
concerns the purchase of a
new home, it is only available
to first-time buyers.
CRS-21

Responsible
Income
administration
Country
Measure name
Description
threshold
Other eligibility criteria
Type of aid
level
Canada
Capital Gains Tax
Tax relief on proceeds of sale of a homeowner’s
No
Homes must be the primary
One-off tax
National/Federal
Exemption
primary residence. Although it is not a measure
residence of the sel er.
relief for
specifical y targeted to home buyers, the capital
homeowners
gains tax exemption provides home sel ers with
additional funds that can be used toward the
purchase of a new home.
Chile
Mortgage interest
Individual taxpayers can deduct from their
Yes
Must be a Chilean citizen.
Tax relief for
National/Federal
deduction
taxable income the interest paid for a mortgage
mortgage
loan during the year, if it was used to purchase
payments
one or more dwel ings.
Colombia
Mortgage interest
In Colombia, any natural person can deduct
No
Must be a Colombian citizen
Tax relief for
National/Federal
deduction
interest payments of mortgage loans, up to a
and first-time homebuyer.
mortgage
maximum annual amount indicated by the law
payments
(see Art. 119 of the National Tax Statute) of
1,200 units of constant purchasing power.
Colombia
Preferential tax
Savings deposited in Special Savings Accounts
No
Must be a Colombian citizen
Preferential
National/Federal
treatment of special
(AFCs) are treated as exempt from income and
and first-time homebuyer.
taxation of
savings account to
complementary tax for the taxable period and
savings
promote
are capped up to 30% of income and maximum
construction
of 3,800 Tax Value Units (COP 130,226,000 in
2019) per year (see Art. 126-4 of the National
Tax Statute).
Costa Rica
Property tax
Exemption of property tax for property owners.
No
Tax relief is granted to
Exemption
Local/municipal
exemption
Dwel ing value must not exceed the equivalent
homeowners with only one
from
of 45 base salaries (the base salary is currently
property.
property tax
valued at around USD 745).
CRS-22

Responsible
Income
administration
Country
Measure name
Description
threshold
Other eligibility criteria
Type of aid
level

Costa Rica
National Financial
Ful exemption for homebuyers with respect to
Yes
One-off tax
Local/municipal
System Law for
registration fees, tax stamps, professional
relief for
Housing and the
association charges, and the real estate transfer
home buyers
Creation of BANHVI tax. In addition, the construction of houses
declared of social interest is exempt from the
payment of cadastre rights, construction stamps,
and other charges and stamps of the
professional associations, and of 50% of the
payment of construction and urbanisation
permits and of al other taxes (Article 147).

Croatia
Programme of state-
Buyers who benefit from POS programme are
Yes
One-off tax
Regional
subsidised housing
exempt from paying real estate transfer tax. The
relief for
construction (POS)
exemption covers an amount which depends on
home buyers
the size of the purchased dwel ing and number
of persons in the household.
Croatia
Tax exemption for
First-time buyers are exempt from paying the
No
First-time home buyer
One-off tax
Regional
buying first real
5% transfer tax.
relief for
estate property for
home buyers
own housing

Czech
Tax relief for
Tax deduction applicable only when housing
No
Tax relief for
National/Federal
Republic
mortgage payments
needs are financed by a loan. Only tax residents
mortgage
(Nezdanitelná cást
of the Czech Republic and tax residents of an
payments
základu dane)
EU Member State or a State of the European
Economic Area with no less than 90% of their
income generated in the Czech Republic are
entitled to the deduction. Tax deduction is
general y also possible in the case of
reconstructions, repairs, maintenance of housing
properties.
CRS-23

Responsible
Income
administration
Country
Measure name
Description
threshold
Other eligibility criteria
Type of aid
level
Denmark
Tax deductibility of
Mortgage interest payments can be deducted
No
No (al individuals are
Tax relief for
National/Federal
mortgage interest
from taxable income, consistent with the
eligible)
mortgage
payments
taxation of net income under a comprehensive
payments
(Rentefradragsret)
income tax. Owner-occupied housing is taxed
separately based on property values, roughly
equivalent to the taxation of the imputed return.
Estonia
The tax exemption
Owners of the land where they live are
No
No (al individuals are
Exemption
National/Federal
on land under homes exempted from land tax for a total up to 0.15
eligible)
from land
(Kodualuse maa
hectares in towns and up to 2 hectares
taxes
maamaksusoodustus)
elsewhere.
Estonia
Deductible housing
Deduction of mortgage interest from income
No
No (al individuals are
Tax relief for
National/Federal
loan interest
tax
eligible)
mortgage
(Eluasemelaenu
payments
intresside
mahaarvamine)
Estonia
Tax exemption of
Tax exemption of the transfer of immovable
No
Must be an Estonian citizen.
Tax relief for
National/Federal
transfer tax (Elukoha
property if:
transfer tax
müügi maksuvabastus)
(i) the property has been the main residence of
the taxpayer;
(i ) the property was transferred to the taxpayer
through restitution of unlawful y expropriated
property;
(i i) the property has been transferred to the
taxpayer through privatisation with the right of
pre-emption (subject to dwel ing size
restrictions); or
(iv) the property is a summer cottage or garden
house in the ownership of the taxpayer for
more than two years (subject to dwel ing size
restrictions).
CRS-24

Responsible
Income
administration
Country
Measure name
Description
threshold
Other eligibility criteria
Type of aid
level
Finland
Tax credit on
Tax credit corresponding to a share of interest
No
Must be a Finnish citizen and
Tax relief for
National/Federal
interest payments
paid on a loan for home purchase or for major
first-time home buyer.
mortgage
(Asuntolainan
home improvements. In 2019, 25% of home-loan
payments
korkovähennys)
interest is deductible from capital income. For
those who have no capital income, 30% of the
deductible interest payments are credited
against earned-income tax (32% for first-time
buyers).
Finland
Transfer tax
As a first-time homebuyer, you may not have to
No
Must be a Finnish citizen and
One-off tax
National/Federal
exemption for first-
pay transfer tax if:
first-time home buyer.
relief for
time homebuyers
(i) you are 18-39 years of age;
home buyers
(Ensiasunnon ostajan
(i ) after the purchase, your share of ownership
varainsi rtoverovapaus)
is at least 50%;
(i i) you purchase the dwel ing to use as your
permanent home and you move in within 6
months from signature of the contract;
(iv) you are a first-time homeowner.
The transfer tax exemption does not apply to
parking spaces.
France
Zero interest loan
The scheme includes the fol owing:
Yes
Must be a French citizen and
One-off tax
National/Federal
(Prêt à taux zéro)
(i) zero-rate loan;
first-time home buyer.
relief for
(i ) exemption of land tax for 2 years after the
home buyers
construction of the main residence;
(i i) exemption of the first estate gain to
purchase main residence;
(iv) value added tax of 5.5% for social housing
ownership.
France
Land tax exemption
Tax benefit with exemption of land tax for two
No
Must be a French citizen.
Exemption
Local/municipal
(Exonération de taxe
years fol owing construction; however, local
from
foncière)
authorities have the possibility to remove this
land taxes
tax benefit.
CRS-25

Responsible
Income
administration
Country
Measure name
Description
threshold
Other eligibility criteria
Type of aid
level
Greece
Tax exemption for
The purchase, inheritance of a first home is
No
Must be a Greek citizen and
One-off tax
National/Federal
first-time home
exempted from tax.
first-time home buyer. Must
relief for
buyers
retain property for at least 5
home buyers
years. Limits based on
household size and
composition and dwel ing
value and size.
Ireland
Help to Buy
Help to Buy (HTB) is an income tax relief
Yes
Purchasers must be first-
One-off tax
National/Federal
Incentive
designed to assist first-time buyers with
time buyers and the property relief for
obtaining the deposit required to purchase or
cost must be no more than
home buyers
build their first home. The relief is only available
EUR 600,000.
for new builds. The relief takes the form of a
rebate of income tax paid over the previous
four tax years. There are limits on the maximum
rebate amount. Sunsets on 31 December 2019;
primary legislation would be required to extend
the incentive.
Iceland
Tax relief for
Individuals who buy a residence for their
Yes
Benefits are linked to income
Tax relief for
National/Federal
mortgage payments
personal use and bear interest expenses are
and net wealth, with limits
mortgage
(Vaxtabætur)
entitled compensation by the State Treasury.
on the amount of interest.
payments
The amount of interest compensation is based
on the interest for loans obtained for the
purpose of financing a building or for purchase
of a residence.
Israel
Exemption from
Tax relief for the purchase of a first home. The
No
Must be an Israeli citizen and One-off tax
National/Federal
purchase tax for
price of the dwel ing must be under a certain
first-time home buyer.
relief for
first-time home
threshold.
first-home
buyers
buyers
CRS-26

Responsible
Income
administration
Country
Measure name
Description
threshold
Other eligibility criteria
Type of aid
level
Italy
Tax deductibility of
Tax deduction on mortgage interest payments
No
Must be an Italian citizen and Tax relief for
National/Federal
mortgage interest
provided that: (i) the property is used as a
first-time home buyer.
mortgage
for first-time home
principal residence within one year of purchase;
payments
buyers
and (i ) the purchase of the dwel ing is made the
year preceding or fol owing the date of
stipulation of the loan. Limits on the total annual
amount to which the tax deduction applies.
Italy
Real estate leasing
Young people under 35 with maximum income
Yes
Young people under age 35;
Tax
National/Federal
of EUR 55,000 are eligible for tax benefits
smal er limits for people over deduction
related to real estate leasing, as wel as a
age 35
deduction from personal income tax of 19%, up
to EUR 8,000 per year. The deduction is applied
to the rent and related additional charges paid
pursuant to “financial lease agreements on real
estate units, including those to be built, to be
used as a principal residence within one year of
delivery,” and up to EUR 20,000 on the sel ing
price, in the case of exercise of the purchase
option. For people over 35 years of age and an
income not exceeding EUR 55,000, the
deduction of 19% from personal income tax is
granted on a maximum amount of EUR 4,000
relative to the fees and EUR 10,000 in relation
to the sel ing price.
Japan
Tax relief for
Deduction of 1% of remaining mortgage loan
Yes
The relief applies to owner-
Tax relief for
National/Federal
purchase of house
balance from income tax up to a maximum
occupied main residential
mortgage
with mortgage
amount, for 10 years. If the deduction exceeds
dwel ing, with floor area over payments
the beneficiary’s income tax liability, the
50 square meters.
remainder may be deducted from municipal tax
up to a maximum amount. Bonus payments are
provided for those on low incomes.
CRS-27

Responsible
Income
administration
Country
Measure name
Description
threshold
Other eligibility criteria
Type of aid
level
Latvia
Fee reduction for
Eligible households are families with children
No
This fee reduction can only
One-off
National/Federal
registering property
who benefit from the state housing guarantee
be used by people using the
reduction in
ownership
programme pay a reduced fee (0.5% of property
guarantee program by
registration
value, rather than 2%) for registering ownership
Altums for families with
fees
rights to immovable property in the land
children.
registry (if the value of the property is less than
EUR 100,000).
Luxembourg Tax deductibility of
Deduction of interest payments from income
No
Must be a Luxembourg
Tax relief for
National/Federal
mortgage interests
taxes. Once the dwel ing is occupied, the
citizen. Dwel ing must be
mortgage
(Déductibilité fiscale
maximum amount of deductible interest
permanent residence.
payments
des intérêts débiteurs)
progressively decreases over time.
Luxembourg Deductibility of the
Deduction of the premium for loan repayment
No
No (al individuals are
Tax relief for
National/Federal
payment protection
insurance from income taxes, as a one-off
eligible)
mortgage
insurance premium
premium or as an annual premium. As an annual
payments
premium, the maximum deduction is EUR 672
for each person in the household.
As a one-off premium, the amount depends on
the number of adults and children in the
household, as wel as the age of the insured
party: the amount varies between EUR 6,000 for
an individual taxpayer aged under 30 without
children, to EUR 40,560 for a couple with 3
children for an insured party aged over 50.
Luxembourg Deductibility of the
Deductibility of yearly contributions to a
No
First-time homebuyers
Preferential
National/Federal
contribution to a
property savings plan (plan d'épargne logement).
taxation of
property savings plan A maximum EUR 672 per person in the
savings
household is deductible from income tax.
Luxembourg Tax credit on notary
An individual can benefit from the tax credit on
No
The recipient must occupy
One-off tax
National/Federal
deeds (Bël egen Akt)
notary deeds several times, until (s)he reaches
the dwel ing for at least 2
relief for
the lifetime threshold of EUR 20,000.
years (and not rent it out) as
home buyers
his/her permanent residence.
CRS-28

Responsible
Income
administration
Country
Measure name
Description
threshold
Other eligibility criteria
Type of aid
level
Malta
First-time buyers
The first EUR150,000 of the transfer value of
No
First-time property buyer,
One-off tax
National/Federal
Scheme
the immovable property is exempt from stamp
provided that the property is
relief for
duty, up to a maximum discount of EUR 5,000.
purchased for the
homebuyers
beneficiary’s own residence.
Malta
Own Residence
Preferential rate on stamp duty for those buying
No
Available to al , provided that One-off tax
National/Federal
a home to be used as their sole main residence
this credit was not already
relief for
availed of on another
home buyers
property.
Mexico
VAT exemption for
Tax relief for mortgage payments
Yes
Must be a Mexican citizen.
Tax relief for
National/Federal
mortgage interest
mortgage
payments
Mexico
Real interest
Individuals can deduct real interest for mortgage
No
Must be a Mexican citizen.
Tax relief for
National/Federal
deduction to
credit in their Personal Income Tax.
Limit on maximum value of
mortgage
individuals for
dwel ing.
payments
mortgage credit
The
Deductible mortgage
Deduction of mortgage interest payments.
No
No (al individuals are
Tax relief for
National/Federal
Netherlands interest rate
There is a maximum deduction percentage of
eligible)
mortgage
51% in 2015. This maximum is reduced by 0.5%-
payments
point every year until it reaches 38%. The
interest deductibility is conditional on
amortization: at least based on an annuity
scheme with a 30-year repayment scheme.
New
Rates Rebate
A government subsidy to low-income
Yes
Income threshold of NZL
Tax credit
Funded by
Zealand
Scheme
homeowners to pay their local government tax.
25,180, plus NZL 500
national
The scheme is funded by central government
income al owance for each
government;
but administered by local governments. A
dependent in the household
administered by
household can receive up to NZD 630.
local
Individual amounts vary depending on rates bil
government
and income.
CRS-29

Responsible
Income
administration
Country
Measure name
Description
threshold
Other eligibility criteria
Type of aid
level
Norway
Home savings for the A home savings account can be established by
No
Persons aged under 34
Tax
National/Federal
young
anyone under the age of 34. There are caps on
deduction
the maximum annual deposit and total deposit in
linked to a
the savings account, and the deposit must be
saving plan
used to purchase a dwel ing or to pay off loans
on a dwel ing that has been acquired after the
account was established. 20% of the annual
savings amount is deductible from taxes.
Norway
Imputed rent and
Imputed rent and capital gains from the sale of a
No
No (al individuals are
One-off tax
National/Federal
capital gains tax
taxpayer’s home (owner occupied) are not
eligible)
relief for
taxed.
homeowners
Norway
Net wealth tax
The taxable value of assets is equal to their
No
No (al individuals are
Net wealth
National/Federal
discount
market value. Homes and other immovable
eligible)
tax
properties are valued wel below market value
discount
(e.g., the taxable value of a primary residence
averages 25% of market value; 90% for
secondary homes; and 75% for recreational
property).
Poland
Housing relief (Ulga
Income gained through the transfer of
No
No (al individuals are
Tax credit
National/Federal
mieszkaniowa)
immovable property is exempt from income tax,
eligible)
if it is spent within three years on purchase
or/and regeneration of the taxpayer’s own
dwel ing.

Poland
Exemption from
Exemption from taxation for interest rate
It applies to beneficiaries of
Tax credit
National/Federal
taxation of interest
subsidies to preferential loans applied on the
support through the Rodzina
rate subsidies
basis of the act on financial support for families
na swoim programme.
and other people in purchasing their own
dwel ing.
CRS-30

Responsible
Income
administration
Country
Measure name
Description
threshold
Other eligibility criteria
Type of aid
level

Poland
Exemption from
Exemption from taxation of amounts of public
It applies to beneficiaries of
Tax credit
National/Federal
taxation of public
financial support and of amounts of
support through the
financial support for
reimbursement of expenses on acquisition of
Mieszkanie dla Mlodych
home buyers and
building materials, granted on the grounds of the
programme to support
reimbursement of
act on the state aid in acquisition of the first
young people in purchasing
expenses on
residential apartment by young people.
their first dwel ing.
acquisition of
building materials

Poland
Exemption from
Exemption from taxation of amounts of
For people who have lost
Tax credit
National/Federal
taxation of public
redeemed receivables pursuant to the act on
their jobs
financial support for
the state aid in repayment of certain housing
certain housing loans
loans granted to persons who have lost their
jobs.
Portugal
Tax relief for
Deduction of mortgage interest from income
No
No (al individuals are
Tax relief for
National/Federal
mortgage payment
tax
eligible)
mortgage
payments
Russian
Tax deduction for
Al citizens have the right to a one-time tax
No
Must be a Russian citizen.
One-off tax
National/Federal
Federation
purchasing dwel ing
deduction of the cost of purchasing or building a
relief for
home (up to RUR 2 mil ion of taxable income).
first-home
Maximum deduction is RUR 260,000.
buyers
Russian
Mortgage tax
Al citizens have the right to a one-time tax
No
Must be a Russian citizen.
Tax relief for
National/Federal
Federation
deduction
deduction of mortgage interest payments (up to
mortgage
RUR 3 mil ion of taxable income). Maximum
payments
deduction is RUR 360,000.
CRS-31

link to page 37 link to page 37
Responsible
Income
administration
Country
Measure name
Description
threshold
Other eligibility criteria
Type of aid
level

Spain
Royal Decree-Law
Different fiscal benefits relating to transfer taxes
No (al individuals are
Tax relief
National/Federal
7/2019 of 1 March
and real estate taxes
eligible)
on urgent measures
regarding housing
and rent (Real
Decreto-ley 7/2019,
de 1 de marzo, de
medidas urgentes en
materia de vivienda y
alquiler)
Swedenc
Tax deduction of
Mortgage interest expenditures up to SEK
No
No (al individuals are
Tax relief for
National/Federal
interest expenditure
100,000 are deductible by 30%, and interest
eligible)
mortgage
expenditures above this threshold are
interest
deductible by 21%. (NB: Al interest
expenditures are deductible, not only interest
expenditures directly related to housing.)

Swedenc
Reduced property
People who have reached the age of 65 at the
No (al individuals are
Tax
National/Federal
fee for pensioners
beginning of the year or who receive sickness or
eligible)
deduction
activity compensation during the year wil only
have to pay a maximum of 4% of their income in
real estate fees. The rules also apply to persons
who have received compensation under
legislation on social security in another state
within the EEA if it can be equated with sickness
or activity compensation.
Switzerland
Encouraging home
Preferential tax rate on advanced payments up
No
The amount that can be
Preferential
Federal,
ownership (2nd pil ar) to the amount of vested benefits from
withdrawn is limited for
taxation of
regional, or
occupational benefit plans concerning old-age
persons aged over 50.
advanced
municipal
(2nd pil ar), survivors and invalidity (1st pil ar)
payments
(depending on
used to finance a principal home property
the canton)
CRS-32

Responsible
Income
administration
Country
Measure name
Description
threshold
Other eligibility criteria
Type of aid
level
Switzerland
Encouraging home
Early payments for the purchase by the insured
No
No further requirements
Preferential
Federal,
ownership (3rd pil ar) person (private pension schemes, 3rd pil ar) of
taxation of
regional, or
his/her home property are taxed at a lower
advanced
municipal
marginal income tax rate.
payments
(depending on
the canton)
United
Capital Gains Tax:
Private Residence Relief relieves homeowner
No
Relief is prorated if
One-off tax
National/Federal
Kingdom
Private Residence
from capital gains tax on any gain made on a
throughout the period of
relief for
Relief (PRR)
residential property, throughout the period in
ownership the property is
homeowners
which the property is occupied as a main
not whol y used as a main
residence.
residence.
United
Stamp Duty Land
First-time buyers purchasing their first home for
No
First-time home buyers.
One-off tax
National/Federal
Kingdom
Tax: First-Time
up to GBP 300,000 are exempt from Stamp
Property must be intended
relief for
Buyers’ Relief
Duty Land Tax. Where the purchase price is
for main residence.
first-home
(FTBR)
between GBP 300,000 and 500,000, they wil
buyers
pay 5% on the amount above GBP 300,000.
United
Mortgage interest
Mortgage interest deductibility from federal
Yes
The dwel ing must be used
Tax relief for
National/Federal
States
deduction
taxable income: homeowners are al owed to
for owner-occupation. The
mortgage
deduct the interest they pay on a mortgage that
maximum mortgage amount
payments
finances a primary or secondary residence as
is USD 750,000 (USD
long as they itemize their tax deductions.
375,000 if married filing
separately). The maximum is
USD 1,000,000 (or USD
500,000 if married filing
separately) if the loan was
taken before 17 December
2017.
Source: This table is a reproduction of OECD Affordable Housing Database Table PH2.2.1: Tax relief supporting access to home-ownership: Overview of existing measures,
available at http://www.oecd.org/els/family/PH2-2-Tax-relief-for-home-ownership.pdf.
Note: The original source for this table did not explain why some table cel entries were left blank or otherwise indicate how to interpret missing entries.
CRS-33

a. Australia: Some state and territory governments provide an exemption or concession on stamp duty (transfer duty) for first-home buyers. The rate of concession
and conditions differ between states and territories. The New South Wales First Home Buyer Assistance Scheme has been used as an example of stamp duty
concession and exemption for first-home buyers.
b. Belgium: The Regional Housing Bonus in the Brussels-Capital Region has been abolished. As of 1 January 2017, the taxpayer can benefit from an increased abatement
under the right of sale.
c. Sweden: mortgage interest is deductible like interest on other kinds of debt. There is also an exemption from paying property tax on new-built dwel ings for 15
years, but it applies not only to owner-occupied dwel ings but also rental dwel ings.

CRS-34

An Economic Analysis of the Mortgage Interest Deduction

Author Information

Mark P. Keightley

Specialist in Economics

Acknowledgments
Joseph S. Hughes, Research Assistant, assisted in the preparation of this report.

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R46429 · VERSION 1 · NEW
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