The report concludes that the mortgage interest deduction (MID) should be reformed to benefit more low and middle-income homeowners. The authors argue that savings of such reforms should be reinvested in Section 8, now officially known as the Housing Choice Voucher Program, and other housing programs to assist low income renters.
The Mortgage Interest Deduction (MID) and Section 8 programs serve different populations through different funding mechanisms. The Section 8 programs, subsidizing the housing costs of the lowest income renters, are funded through Congressional appropriations.
Not all households eligible for Section 8 receive assistance because the program receives insufficient funding.
The MID is a tax expenditure that provides a benefit to homeowners with a mortgage who itemize their deductions.
The MID is available to any homeowner who pays interest on a mortgage.
But the MID’s benefit is greater for households with larger mortgages and higher incomes (i.e., those in higher tax brackets.)
Many lower income homeowners do not benefit from the MID at all because they claim the standard deduction instead of itemizing.
Nationally, the MID cost the federal government $71 billion in 2015 compared to $29.9 billion for the Section 8 programs.
Over half of high income households, those earning more than 120% of the area median income (AMI), claimed the MID.
Only 11% of low income households, those earning less than 80% AMI, benefited from the Section 8 programs or the MID.
Low income households received only 33.8% of the combined expenditures on the MID and Section 8 programs, even though low income households accounted for 74.4% of all cost-burdened households who spend more than 30% of their income on housing.
High income households made up just 12.5% of cost-burdened households, but received 60.1% of total federal expenditures on the MID and Section 8 programs. High income households do not qualify for Section 8, but they received 85% of the MID benefits.
converting the MID to a tax credit, which would allow lower and middle-income homeowners to receive a tax benefit, and
lowering the amount of mortgage eligible for a tax break.
These reforms would extend tax relief to more low and middle-income homeowners, while generating savings that could be invested in rental housing assistance like the Section 8 programs, public housing, the national Housing Trust Fund, and/or a renters’ tax credit.