Research Report Racial and Ethnic Disparities in the Home Mortgage Interest Deduction
Janet Holtzblatt, Robert McClelland, Gabriella Garriga
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In this paper, we begin with a description of the tax treatment of personal residences. Next, we review data about racial and ethnicity gaps in net wealth and homeownership and prior research on the reasons for those differences. We turn then to our empirical analysis of the impact of the HMID on tax liabilities, by income, race, and ethnicity under 2019 tax law and after the expiration of the TCJA and the return to 2017 law.

Why this matters

A legacy of racial discrimination—in the housing market and mortgage lending industry, among other sectors—has led to lower rates of homeownership among Black and Hispanic families than among White families. One consequence of the lower homeownership rates is that Black and Hispanic families do not benefit as much from the home mortgage interest deduction as White families. This paper contributes to the literature examining the overall policy implications HMID and TCJA for some racial and ethnic groups.

What we found

We find that Black and Hispanic families received just 54 percent and 38 percent, respectively, of the average benefit for all families in 2019. In contrast, White families got 21 percent more than the average.

A surprising result is that in the top income group, Black taxpayers receive a disproportionately larger benefit relative to White taxpayers under TCJA, but that relationship will be reversed after the expiration of the individual income tax provisions.

Expiration of the individual provisions in the 2017 Tax Cuts and Jobs Act (TCJA) will more than double the share of families who claim the deduction in each group, in large part due to the reduction in the standard deduction amounts. Although the average benefit will rise for all groups, the relative disparities will not change substantially.

How we did it

We used the Urban-Brookings Tax Policy Center’s microsimulation model to stimulate the effects of various policy options under 2017 and 2019 law.

Research Areas Taxes and budgets Housing finance Race and equity
Policy Centers Urban-Brookings Tax Policy Center
Research Methods Microsimulation modeling