Mortgage Interest Deduction Usage by Tax Bracket

Posted By PK Last updated July 25th, 2012 8 Comments

About a month ago, my colleague Cameron penned an article about the Mortgage Interest Deduction – namely, whether it is a good idea or not. For an itemizing taxpayer in the 25% bracket, he pointed out, “The bank receives 4.0% interest, the homeowner pays 3.0% and the taxpayer is left footing the 1.0% difference.” Right – and the bank ends up pocketing the subsidy.

Now, politically, the mortgage interest deduction is a sacred cow. In 2009, 26% of all tax returns had some mortgage interest itemized – a whopping 36,541,820 returns, in total. How did it break down? Well, let me present it for you graphically by income bracket. Again, this is 2009 IRS tax data.

So, there you have it… as you move up the income brackets, more and more returns take the deduction. I suppose that’s not that incredible of a result, but it is interesting to take a look at the percentage of returns in each bracket, relative to other brackets.

What do you think about the mortgage interest deduction?

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krantcents

I think it will stay forever thanks to a very powerful lobby! If it goes, something will replace it in one form or another.
- http://www.dqydj.net/ PK
  
  I’m with you on that – at least for primary residences.
freeby50

I think it is also good to look at the total # of people in each income group getting the dedduction. About 17million of the people claiming the deduction,about 17.5% of the people make under $40k, ~47%, are making $40-100k. 34% of the people make $100-$500k. Only 1.4% of the people claiming the deduction make over $500k. So there aren’t a lot of people in the higher income brackets taking this as far as total #’s.

I think this is one deduction that doesn’t make a ton of sense. I don’t know why we feel we need a tax subsidy for mortgages. But I guess homeownership fits into the American Dream. The deduction does seem to benefit high income people heavily. I’d be in favor of putting an income cap on the deduction or something so people making $10 million a year don’t get tax subsidies for their 12 bedroom mansions.
- http://www.myjourneytomillions.com Evan@MyJourneytoMillions
  
  They already have that in two forms:
  1) Only the interest on up to $1mil note can be deducted
  http://taxes.about.com/od/deductionscredits/a/MortgageDeduct_2.htm
  
  2) AMT doesn’t include Mortgage Deduction
  
  So if they are making 10 mil and subject to AMT then it is out…or if they are making 10 mil and NOT subject they are only getting a small benefit.
  - freeby50
    
    Even, actually AMT does include mortgage interest deductions. It doesn’t include property tax but you can still deduct mortgage interest. You are right that there is a cap on the interest that can be claimed.
- http://www.dqydj.net/ PK
  
  I agree with you overall, but from a “political handout level” I know people like to see what percentage of each income bracket is taking advantage of something. So if only ~ 1% of returns are making over $250,000, what deductions are they taking?
  
  For what it’s worth, the vast majority of the total DOES go to the under $100,000 crew, as you saw, haha.
  - freeby50
    
    Yeah, I think its good to look at it from both perspectives.
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Mortgage Interest Deduction Usage by Tax Bracket

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