Repercussions if Real Estate Mortgage Deductions are Eliminated

Mortgage Interest Deduction (MID) Facts:

  • Approximately 51 of the 75 million owner-occupied homes in the U.S. in 2009 had a mortgage
  • $470 billion was deducted for mortgage interest in 2008
  • Total tax savings from MID in the U.S. was $117 billion
  • A total of $172 billion was deducted for real estate taxes in 2008
  • Average tax payer claimed $4090 from taxable income in 2008
  • Total savings from real estate tax deduction in the U.S. was $43 billion
Danielle Hale, Research Economist

If the mortgage interest and real estate tax deductions were eliminated, the loss would not be a one-year event; homeowners lose out on these potential savings each and every year. The present value3 of these lost savings could total $3.2 trillion. The value of all owner-occupied real estate in the United States in 2009 was $19.3 trillion4 . If the lost tax savings are fully capitalized into the price of houses, the average decline in value in the United States would be 17 percent. From the individual perspective, the median priced home in the United States in the third quarter 2010 was $177,800. A decline in value of 17 percent, as projected, would mean a loss in home value of $29,500 for the typical home owner.
3Present value calculation assumes 5 percent discount rate and 1000 year time horizon.
4As measured by the American Community Survey. The Federal Reserve Flow of Funds for 2009 estimated the market value of household real estate to be $17 trillion which would raise the estimate of the decline in value to 19 percent.

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