According to the most recent public data from the IRS, there were about 144 million[1] US tax filers in 2010. In the same year, the US resident population was 309 million[2] and the number of households was estimated to be just shy of 113 million[3]—with 75 million owner-occupied and the other 37 million occupied by renters. Among owner occupants, roughly 25 million owned homes without a mortgage while the other 50 million reported some type of mortgage on the property. In tax year 2010, about 47 million tax filers itemized and nearly 37 million of those itemizers claimed a deduction for home mortgage interest (MID).
This is the same background data used by many to report on the mortgage interest deduction including the oft-cited statistic that only 26 percent of tax filers claim the mortgage interest deduction (37 million MID claimers divided by 144 million tax filers). This information is not wrong, but is it meaningful? Here you’ll see why context matters.
To begin, what is a tax filer? It’s similar to, but not quite a household. Based on the data above, you can see that there are more tax filers than households, so some households have more than one tax filer (think of dependent children who might have a side job, a group of young adults, or an elder parent living with a family). You can also see that not every resident files taxes. Even if I were to break down the population to exclude the young and the elderly, we would still find that some do not file a tax return, generally because they have little or no earnings and are not subject to withholding.
So let’s look at something we can more easily place in context. Using the same data, you can see that roughly 50 percent of home owners claimed a mortgage interest deduction (37 million MID claimers divided by 75 million home owners). Zooming in a bit more, we see that out of mortgaged owners, roughly three-quarters claimed the MID (37 million divided by 50 million mortgaged home owners). What sounds like a relatively unimportant tax provision when its role among all tax filers is considered suddenly becomes much more important when you see how it is used among its target population.
The varying importance of the MID to an owner over the life-cycle of ownership is intuitive to those in the business who see new or trade-up buyers take on debt to purchase a home. When the debt is new, a significant portion of payments is for interest and the MID an owner takes is relatively large. As the debt is paid down, the interest payments shrink and the tax deduction becomes smaller until eventually the owner no longer claims the MID.
Below, you’ll find a table that shows some of this information by state, namely the percent of tax filers claiming the MID, the percent of home owners claiming the MID, and the percent of mortgaged home owners claiming the MID.
[1] Internal Revenue Service
[2] Census Bureau
[3] Census Housing Vacancy Survey
