Access and Affordability: Homeowner Taxation

Abstract

Tax expenditures for home ownership come in various forms. One broad category is deductions or credits that either reduce taxable income or the tax payable on that income. Examples are deductions for mortgage interest, property taxes, and other housing expenses. Another category consists of exemption or exclusion of certain types of income from taxation. Common exemptions are imputed rent and capital gains. Considerations of economic efficiency, equity, tax simplification, and transparency are all relevant to the analysis of tax expenditures. While some tax expenditures – nontaxation of imputed rent and capital gains – seem justified due to the administrative difficulty of taxing the relevant income, others – mortgage interest and other deductions – seem undesirable because they complicate the tax system without providing any demonstrable benefits. On balance, some kinds of direct subsidies may be preferable alternatives.