A new report from the Congressional Research Service entitled “An Analyses of the Geographic Distribution of the Mortgage Interest Deduction” by Mark P. Keightley uses four data sources to examine differences in the value and utilization of the mortgage interest deduction (MID) across the states. The analyses is based on the Joint Committee on Taxation estimate of the FY12 cost of the MID at $68.5 billion. The report was published on January 30, 2014.
The first calculation is of the average per capita benefit of the MID, which was $219 nationwide in 2012. It ranged from $87 per capita in Mississippi to $426 in the District of Columbia. The average benefit per tax payer who claimed the MID nationwide was $1,906, but ranged from $891 in Ohio to $3,722 again in DC.
Nationally, just 25% of all tax filers in 2012 claimed the MID. In South Dakota, only 14% of tax filers claimed the MID. The highest percentage was 35% in Maryland. The percent of all homeowners who claimed the MID in 2012 was 48%, with a range of 22% in North and South Dakota to up to 73% in the Mid-Atlantic states.
Explanations for the geographic variations in MID beneficiaries are differences in homeownership rates, home prices, state and local taxes, and incomes. However, the data do not offer the ability to assess the size of the effect of the different explanations.
The author considers proposed changes to the MID. He finds that limiting the MID to an amount less than the current limit of $1.1 million and converting the deduction to a tax credit would mean the mortgage interest tax break would be more equitably distributed among the states. The United for Homes proposal would lower the cap on the size of mortgage for which interest can be deducted to $500,000 and would change the MID to a 15% non-refundable tax credit.
To read the CRS paper, go to: http://bit.ly/1bjaMdH