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

42 Pages Posted: 19 Apr 2021 Last revised: 22 Oct 2021

See all articles by Brent W. Ambrose

Brent W. Ambrose

Pennsylvania State University

Patric Hendershott

affiliation not provided to SSRN

David C. Ling

University of Florida - Hough Graduate School of Business Administration

Gary A. McGill

University of Florida - Fisher School of Accounting

Date Written: April 12, 2021

Abstract

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.

Keywords: tax policy; homeownership; mortgage interest deduction; net implicit rental income

JEL Classification: G51, H24

Suggested Citation

Ambrose, Brent W. and Hendershott, Patric and Ling, David C. and McGill, Gary A., Homeownership and Taxes: How the TCJA Altered the Tax Code’s Treatment of Housing (April 12, 2021). Available at SSRN: https://ssrn.com/abstract=3827336 or http://dx.doi.org/10.2139/ssrn.3827336

Brent W. Ambrose (Contact Author)

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-867-0066 (Phone)
814-865-6284 (Fax)

Patric Hendershott

affiliation not provided to SSRN

David C. Ling

University of Florida - Hough Graduate School of Business Administration ( email )

PO Box 117165, 201 Stuzin Hall
Gainesville, FL 32610-0496
United States
(352) 392-0153 (Phone)
(352) 392-0301 (Fax)

Gary A. McGill

University of Florida - Fisher School of Accounting ( email )

Warrington College of Business
PO Box 117166
Gainesville, FL 32611-7166
United States
352-273-0219 (Phone)
352-392-7962 (Fax)

HOME PAGE: http://warrington.ufl.edu/fsoa/faculty/facultyinfo.asp?WEBID=1132

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