New research from the National Association of Home Builders reveals that housing tax incentives benefit younger households the most. These borrowers typically have large mortgages, small amounts of equity in their homes and growing families.
Housing-related tax deductions, such as the mortgage interest deduction, generally decline in value as individuals age, according to research from NAHB, which used Internal Revenue Service Statistics of Income data, to report for the first time how various tax deductions are used by different age groups.
The average mortgage interest deduction peaks for taxpayers in the 35 to under-45 age group, followed by the 18-to 34-aged taxpayers, and declines as the taxpayer gets older.
According to the research, this occurs because the mortgage interest deduction peaks soon after the taxpayer moves from renting to homeownership, and declines over time as homeowners pay down existing mortgage debt and increase homeowner equity.
When examining the age distribution of those claiming the deduction for mortgage insurance, which is associated with homeowners making a downpayment of less than 20%, the analysis found that the largest share - 59% - goes to those aged 18 to under-45.
The age-related pattern for the smaller tax deduction for local and state real estate taxes, however, differs slightly. Unlike the mortgage interest deduction, which declines in value as taxpayers age, the value of the real estate tax deduction increases as taxpayers age, primarily due to increases in home values as household income and wealth increases.
The report also shows that both housing deductions, for mortgage interest and real estate taxes, fall as a share of household income for older taxpayers. In contrast, the share of other non-housing deductions, such as the medical expense, charitable contribution, and investment interest expense deductions, rises for taxpayers who are 65 and older.
