New Report Shows That the Mortgage Interest Deduction is One of the Drivers of the U.S. Racial Wealth Gap

Washington, DC - The National Low Income Housing Coalition (NLIHC) and the Institute on Assets and Social Policy (IASP) at Brandeis University’s Heller School released today a report, “Misdirected Investments: How the Mortgage Interest Deduction Drives Inequality and the Racial Wealth Gap.” The report shows that while African Americans and Hispanics each account for 13% of the nation’s households, they receive only 6% and 7% of the tax benefits from the mortgage interest deduction (MID). White households receive nearly 78% of the deduction’s benefits.

The MID is an annual federal expenditure of $71 billion that primarily goes to higher income homeowners. White households are more likely to benefit from the MID because they are more likely to own a home, have larger mortgages, and earn higher incomes.  Renters receive no benefit from the MID, and many lower and moderate income homeowners do not benefit from the mortgage deduction because they claim the standard tax deduction. Nearly $55 billion of the MID benefit goes to homeowners with annual incomes of more than $100,000; $10.5 billion goes to households with incomes in the top 1%.

The report proposes reforms that would provide greater equity in the distribution of federal housing expenditures.  These reforms include converting the deduction to a tax credit, which would provide all mortgaged homeowners with tax relief regardless of their income, and lowering the cap on the amount of a mortgage eligible for a tax break from $1 million to $500,000. The significant savings from these two reforms - $241 billion over ten years- should be reinvested in housing for the lowest income households most in need of assistance through solutions like the national Housing Trust Fund.

“We spend billions of dollars a year providing federal housing assistance to higher income households who would be stably housed without that subsidy, while we spend far too little helping low income renters struggling to pay the rent,” said NLIHC President and CEO Diane Yentel.  The IASP research team adds, “The facts show that the Mortgage Interest Deduction is a massive redistribution of wealth from families of color to wealthy home owners.”

The MID has received increased attention as policy makers consider enacting tax reform this year. A growing number of economists have shown not only that the MID is a highly regressive tax expenditure primarily benefiting higher income households, but that it also does not stimulate first-time homeownership but rather encourages larger home debt and inflated home values.

This report provides clear evidence that the MID contributes significantly to racial wealth inequality in America. The current tax reform debate provides an opportunity to rebalance federal housing policy to address the needs of lower income people struggling to keep a roof over their heads while correcting one of the key drivers of inequality and the racial wealth gap in our country.

Read “Misdirected Investments: How the Mortgage Interest Deduction Drives Inequality and the Racial Wealth Gap” here.


Established in 1974 by Cushing N. Dolbeare, the National Low Income Housing Coalition is dedicated solely to achieving socially just public policy that assures people with the lowest incomes in the United States have affordable and decent homes.

The Institute on Assets and Social Policy (IASP) is a research institute that advances economic opportunity and equity for individuals and families, particularly households of color and those kept out of the economic mainstream. Our work furthers the understanding that assets and wealth are critical to household well-being and all families should have access to the resources and opportunities needed to participate fully in social and economic life. Working at the intersections of academia, policy, and practice, IASP partners with diverse communities to transform structures, policies, and narratives. Grounded in a social justice tradition, our research informs strategic action for racial and economic justice to achieve an inclusive, equitable society.