The equity of tax breaks for housing

Housing-related tax breaks have benefited many high income taxpayers in the past, but most of our VITA site clients have seen little or no tax benefits for their housing expenditures. Most of our clients are not homeowners, and the few clients who do own homes often get little benefit from the home ownership tax breaks for a variety of reasons. (Their itemized deductions may total less than their standard deduction, their taxable income may be zero even before itemized deductions are taken into account, and/or their marginal tax bracket is low.)

Prof. Dorothy Brown of Emory University has a thought-provoking essay on the disparate impact of housing tax breaks on taxpayers of different races and income levels.

The complete paper is available at this link.

Here is the abstract:

Federal tax policies such as the mortgage interest deduction do not encourage anyone to become a homeowner, yet they do increase the cost of housing. Low-income homeowners regardless of race are least likely to be able to take advantage of the mortgage interest deduction. They pay for a benefit that they cannot receive. Middle and upper income black homeowners are less likely than middle and upper income white homeowners to benefit from federal tax laws supporting home ownership in different ways. The appreciation of most middle and upper income black homes are significantly less than the appreciation of most white middle and upper income white homes. As a result, those black taxpayers will not benefit as much from the tax provisions that exclude from income gain on the sale of their homes as their white counterparts will. This essay suggests three solutions which if enacted would cause the tax benefits to be more equitably distributed and no longer concentrated in the hands of higher income, white taxpayers.

Interesting followup discussion from NYU Law Professor Daniel Shaviro is available here: