Renters and low-income households are not the only ones receiving public sector housing-related subsidies. Federal mortgage interest deduction is a significant offset for homeowners, especially higher income homeowners. A household earning $200,000 with a $700,000 mortgage will be paying roughly $40,000 of federally deductible interest annually during the first decade, enough to reduce their federal tax bill by $10,000. The benefits of this deduction accrue relatively more for higher-income homeowners (in a higher tax bracket) and those with a relatively recent mortgage (where the monthly payments include a larger share of mortgage interest). Lower income households, those with an older mortgage, and those who do not have many other deductible expenses benefit the least. The availability of this tax deduction is a major reason why homeownership provides such wealth-building opportunities.
Massachusetts offers a tax deduction for renters, who may deduct 50% of their rent paid to a landlord for a principal residence in Massachusetts, up to $4,000. At the state’s 5% tax rate, the maximum deduction results in a $200 reduction in tax liability, or $16 per month. This is equal to 1% of the median rent for all Massachusetts renters. This benefit is available to all Massachusetts renter taxpayers, regardless of whether they itemize deductions. Twenty-two other states plus the District of Columbia provide some form of rental deduction, credit, or refund for rent costs. Massachusetts, New Jersey, and Indiana are the only states that do not condition this benefit on income, age, disability status, or other factors. While the Massachusetts deduction provides some relief for renters, it is too small to make a substantial impact on renter cost burden.