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Homeownership and Taxes: How the TCJA Altered the Tax Code’s Treatment of Housing

The federal government has long promoted homeownership through various provisions in the U.S. income tax code. The Tax Cuts and Jobs Act of 2017 (TCJA) renewed interest and debate about the treatment of housing via the tax code, particularly with respect to the mortgage interest deduction and the limitation on deductions for state and local taxes. We document the extent that the TCJA magnifies the long-standing anti-mortgage debt bias in the tax code. Our analysis reveals that ongoing discussions about the effects of eliminating the mortgage interest deduction are largely irrelevant because most households no longer benefit from this deduction. We also demonstrate how the limitations on the deduction of state and local taxes alters the costs associated with homeownership across geographic areas, and we provide detailed calculations of the average and marginal tax rates at which housing related expenses are deducted. Finally, we calculate how the major tax benefit of owner-occupied housing — the nontaxation of net implicit rental income varies across income groups and locations.