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1 Patrick Fleenor, Tax Savings from Mortgage Interest Deduction Vary Significantly from State to State 1 (2010)

handle is hein.taxfoundation/ffcdaxz0001 and id is 1 raw text is: FISCAL FOUNDATIONFC May25, 2010 No. 230 FC Tax Savings from Mortgage Interest Deduction Vary Significantly from State to State By Patrick Fleenor Newly released IRS tax data by state for 2008 illustrate how much more the mortgage interest deduction is worth to some states than others (see Table 1 below). Sound tax policy dictates that interest payments be deductible only when they are incurred to produce taxable income, such as those resulting from a small business loan. Mortgage interest on a principal residence doesn't meet this requirement, but a special exception was carved out at the inception of the income tax in 1913, and the mortgage interest deduction has become one of the largest and most sacrosanct loopholes in the tax code. For tax year 2008, a little over one quarter of the nation's tax returns claimed the mortgage interest deduction, 26.8 percent of the nation's 143 million tax returns. Rates of home ownership are much higher than this, but many home owners don't claim the deduction. Often they live in low-cost homes for which the deduction isn't large enough to make a tax difference, so they don't itemize deductions on their tax returns. In addition, home owners who have paid off their mortgages make no interest payments to deduct. The average tax return in the U.S. deducted $3,279 in mortgage interest; that includes all tax returns, even the non-homeowners and non-itemizers. Counting only the tax returns that deducted mortgage interest, the average amount was $12,221. Overall, Maryland and California are the biggest winners. Maryland had the highest percentage of tax returns claiming the deduction, 37.9 percent, and average dollar amounts claimed were also high. It had the second-highest average deduction among all tax returns, $5,372, and counting only the tax returns that claim the mortgage interest deduction, the average Maryland tax return claimed $14,162 in mortgage interest. That is the fifth highest nationwide. California had a lower percentage of tax returns claiming the deduction, but when Californians deduct mortgage interest, the amounts are high. Of California's 16.4 million tax returns, about three in ten deducted mortgage interest, 29.2 percent, 19th highest nationwide. But California ranked highest in average deduction among deducting returns, $18,876, and also highest among all returns, $5,520. Hawaii also ranked high, with its famously expensive homes, as did Nevada Patrick Fleenor is chief economist at the Tax Foundation.

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