Federal tax benefits for homeownership are among the heftiest and most popular of any in the Internal Revenue Code: An estimated $81 billion for mortgage interest write-offs, $15 billion for local real estate taxes and another $24 billion for capital gains exclusions this year alone, according to the congressional Joint Committee on Taxation.
But who really gets these tax-code goodies? Who gets to write off the most? New research offers intriguing insights into where the billions of dollars in annual mortgage interest and real estate tax deductions flow, state by state, congressional district by congressional district. The research was conducted by the National Association of Home Builders, using the latest comprehensive IRS data available - tax year 2003.
Among the eye-opening findings:
Homeowners in a single congressional district in California - the 14th District in Silicon Valley - took more in mortgage interest write-offs than all the residents of six states combined.
Homeowners in the 14th claimed $3.2 billion in mortgage interest deductions during the year covered by the study, compared with $2.9 billion by all the residents of Vermont, Wyoming, West Virginia, Alabama, North Dakota and South Dakota. The average deduction in the 14th District was $35,000, compared with an average of $9,500 for homeowners nationwide.
Residents of a single congressional district on Long Island wrote off more in real estate property tax deductions than all the homeowners from seven states combined.
Owners in New York's 3rd District took $1.25 billion in deductions - more than the $1.2 billion total claimed during the comparable period in Hawaii, Wyoming, Arkansas, Delaware, the District of Columbia, North Dakota and South Dakota.
The average New Jersey homeowner claimed $6,005 in real estate tax write-offs - more than five times the average deduction by residents of Hawaii ($1,126).
New Yorkers claimed an average $5,181 in property tax deductions, followed by the residents of New Hampshire ($4,830), Illinois ($4,129) and Vermont ($3,845).
The average California homeowner wrote off $14,217 in mortgage interest deductions, while the average homeowner in Oklahoma wrote off $5,710. Washington, D.C., homeowners took an average $11,759 in mortgage interest deductions, while the average homeowner in North Carolina got $6,808.
The study toted up the deductions for mortgage interest and local real estate taxes for all 435 congressional districts and 50 states.
A key purpose of the project was to show congressional representatives just how economically significant current homeowner-related tax write-offs are to their district residents.
Though there are no active legislative threats to the mortgage interest and real estate benefits on Capitol Hill's docket, their sheer size and uneven distribution geographically make them perennially tempting targets for budget balancers seeking to increase federal revenues.
The mortgage interest write-off - available on qualifying primary home loan balances up to $1 million and $100,000 in home equity debt - is expected to cost the Treasury close to $100 billion a year by 2009, according to joint tax committee estimates. If the deductions were capped at some mortgage limit considerably below today's $1.1 million - say at $300,000 or $400,000 - the federal deficit could be reduced by tens of billions of dollars every year, say reformers.
A lower cap would also lessen the current system's huge disparities between the tax benefits received by residents of states with high housing costs and big mortgages.
Defenders of the current system - the National Association of Home Builders is one of the most outspoken - argue that the disproportionate write-offs are attributable to the starkly different realities confronting homeowners from state to state.
For example, New Jersey and New York residents get to deduct more for local property taxes because they pay much higher taxes than people who live elsewhere: Their state governments rely more heavily on real estate tax revenues to run schools and other government services. California homeowners write off far more for mortgage interest because they pay a lot more for their houses and they have the biggest mortgages, on average, in the country.
Bottom line on realty write-offs: If you're not taking big ones, that's probably because you're not being eaten alive by huge mortgage bills and heavy property taxes.