1. Home Owner Interactions with the
Federal Income Tax System
Presentation to
National Association of Realtors® Research Committee
New Orleans, LA
November 6, 2010
Danielle Hale, Economist

2. Facts on Home Owners and the
Federal Income Tax System
• There are 75 million home owners among 112 million households
in the U.S.
• Home owners can typically deduct mortgage interest, state and local
real estate taxes, and exclude a portion of capital gains on the sale
of their residence.
• In 2007, 143 million tax returns were filed. Of these, 45.5 million
included a deduction for mortgage interest OR real estate taxes.
• Home owners pay 80 to 90 percent of Federal Individual Income
Taxes.
• Among the age groups, 35 to 44 year olds have the largest average
mortgage interest deduction while those 65 and older have the
largest average real estate taxes deduction.
Sources: Census, IRS, NAR Research Estimate

3. How are Tax Benefits Determined?
• Home owner pays mortgage interest and real estate
taxes that can be itemized as deductions, reducing the
owner’s amount of taxable income
• If the home owner has enough total deductions (MID,
Real Estate Taxes, State and Local Income/Sales Taxes,
Charitable Contributions, Medical Expenses, etc.) to
exceed standard deduction for filing status and itemizes:
Tax Savings = Deductions * Marginal Tax Rate

4. 2010 Standard Deductions and Marginal Tax Rates
Filing Status Standard Deduction*
Single $5,700
Head of Household $8,400
Married Joint $11,400
Married Separate $5,700
Filing Status 10% 15% 25% 28% 33% 35%
Single $0 $8,375 $34,000 $82,400 $171,850 $373,650
Head of Household $0 $11,950 $45,550 $117,650 $190,550 $373,650
Married Joint $0 $16,750 $68,000 $137,300 $209,250 $373,650
Married Separate $0 $8,375 $34,000 $68,650 $104,625 $186,825
Source: Tax Policy Center 2010 Projection
*Additional Standard Deduction Available for Elderly and Blind

5. What Might an Owner Deduct?
• $200,000 home purchased with
10% down payment , 5.5
percent mortgage interest rate
• Monthly payment = $1,022 for
principle and interest
• Interest paid is $825/month or
$9,900 during the first year.
• Property taxes of 1 percent add
another $167/month or $2,000
per year in the first year
• First-year home-related
deductions are $11,900!
$8,959
$2,388
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Years after home purchase
Home Ownership Deductions:
Mortgage Interest and Real Estate Taxes
Paid
Selected Year Mortgage Interest Paid
Real Estate Taxes Paid
Source: NAR Calculations

6. About the Mortgage Interest Deduction (MID)
• 38.5 million individual
income tax filers claimed
a mortgage interest
deduction (MID) in 2008
• Of the 75 million home
owners, about 32 percent
own their homes
outright, they have no
mortgage.
Itemize,
38.5, 51%
Free and
Clear,
24, 32%
Mortgage,
but Don't
Itemize,
12.5, 17%
Owners by Filing Status
Sources: Census, IRS 2008, NAR Research Estimate

7. Mortgage Interest Deducted, by State
States by Share of Returns Claiming
Deductions
1 Maryland 38%
2 Connecticut 35%
3 Colorado 35%
4 Minnesota 34%
5 Virginia 34%
46 Louisiana 19%
47 Mississippi 18%
48 West Virginia 15%
49 South Dakota 15%
50 North Dakota 15%
States by Size of Avg Deduction
1 California $18,876
2 Hawaii $16,730
3 Nevada $15,502
4 Washington $14,262
5 Maryland $14,162
46 Kentucky $8,345
47 Mississippi $8,301
48 Nebraska $8,233
49 Iowa $8,104
50 Oklahoma $7,992
Sources: IRS 2008, NAR Research Estimate

8. Average Mortgage Interest Deducted, by Age
$12,160
$8,799
$12,300
$13,829
$12,374
$11,099
$9,577
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
All returns 18 under 26 26 under 35 35 under 45 45 under 55 55 under 65 65 and over
Sources: IRS 2008, NAR Calculations

9. About the Real Estate Tax Deduction
• In 2008, 29.3 percent of individual income tax filers
claimed a deduction for real estate taxes
• This is a larger share than the 26.8 percent (38.5
million) who claimed the MID
• 41.6 million tax returns claimed a deduction for real
estate taxes in 2008
Sources: Census, IRS 2008, NAR Research Estimate

10. Real Estate Taxes Deducted, by State
States by Share of Returns Claiming
Deductions
1 Connecticut 41%
2 Maryland 41%
3 New Jersey 39%
4 Minnesota 38%
5 Massachusetts 36%
46 Mississippi 20%
47 South Dakota 17%
48 North Dakota 17%
49 Louisiana 17%
50 West Virginia 17%
States by Size of Avg Deduction
1 New Jersey $7,918
2 New York $7,103
3 Connecticut $6,293
4 New Hampshire $6,146
5 Illinois $5,473
46 South Carolina $1,665
47 Mississippi $1,591
48 Arkansas $1,406
49 West Virginia $1,282
50 Alabama $1,269
Sources: IRS 2008, NAR Research Estimate

11. Average Real Estate Taxes Deducted, by Age
$4,032
$1,998
$2,904
$3,856
$4,219 $4,298
$4,568
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
$5,000
All returns 18 under 26 26 under 35 35 under 45 45 under 55 55 under 65 65 and over
Sources: IRS 2008, NAR Calculations

12. • Some home owners do
not itemize.
• NAR estimates that these
12 million owners pay
between 5 and 11 percent
of all income taxes.
Home Owner Tax Share and
Non-Itemizing Home Owners
$859,089,000,
77%
$203,623,543,
18%
$52,889,260,
5%
Federal Income Taxes and Share
by Ownership Status
Owners Standard Deducters Itemizing Non Owners
Source: IRS 2007, NAR Calculations
%?

13. Temporary Tax Measure: The First-time Home
Buyer Tax Credit
All
Buyers
First-time
Buyers
Repeat
Buyers
Used tax credit 71% 93% 48%
Did not qualify for
tax credit
27 6 49
Was not aware of
tax credit
2 1 3
Source: 2010 NAR Profile of Home Buyers and Sellers
Before Nov
2009
After Nov
2009
Used tax credit 58% 79%
Did not qualify for
tax credit
40 20
Was not aware of
tax credit
2 2
• The 2010 Profile of
Home Buyers and Sellers
has new results on the
First-time Home Buyer
Tax Credit.
• Nearly 80 percent of
home buyers who closed
in November 2009 or
later used the tax credit.

14. Appendix
Additional Charts/Data

15. Debt and Deficits
• Individual Comparison
– Debt = Total money owed
– Deficit = Annual Spending Exceeds Income for fixed period
• What results from deficits and debt?
– Individual
– Country
• Evidence that debt above 90 percent reduces growth
(Reinhart and Rogoff)
• Other rules of thumb suggest that deficits raise interest rates and
reduce growth

16. Annual Federal Deficits through 2020
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
-1.6
-1.4
-1.2
-1
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Trillions
Annual Surplus/Deficit (left axis) Share of GDP (right axis)
Source: OMB

17. Net Federal Debt Outstanding
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0
2
4
6
8
10
12
14
16
18
20
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Trillions
Debt Held by Public (left axis) Publicly Held Debt as % GDP (right axis)
Source: OMB

18. Net Federal Revenue, by Source
44%
7%
42%
3%
1%
1%
2%
2009
Individual Income Tax
Corporate Income Tax
Social Insurance Taxes
& Contribs
Excise Taxes
Estate and Gift Taxes
Customs
Miscellaneous
50%
10%
32%
3%
2% 1%
2%
2000
Source: OMB

19. Net Federal Outlays, by Category
34%
23%
11%
7%
13%
12%
2000
35%
19%
12%
7%
22%
5%
2009
Discretionary Outlays
Mandatory Social
Security Outlays
Mandatory Medicare
Outlays
Mandatory Medicaid
Outlays
Other Mandatory
Outlays
Net Interest Outlays
Source: OMB

20. Ok, we have a Fiscal Problem. Where to cut?
• Mandatory Spending (53% in 2000; 60% in 2009):
– Social Security, Medicare/Medicaid
• Discretionary Spending (34% in 2000; 35% in 2009):
– Defense, Homeland Security, Commerce, Education
• Tax Expenditures:
– Reduction in income tax liability as a result of special tax
provisions or regulations to particular taxpayers
– Revenue losses due to special exclusion, exemption, or
deduction from gross income or special credit, preferential
rate of tax, or deferral of tax liability
Source: OMB

21. Tax Expenditures – Controversy?
• The tax expenditure concept relies heavily on a normative notion that shielding
certain taxpayer income from taxation deprives government of its rightful
revenues. This view is inconsistent with the proposition that income belongs to
the taxpayers and that tax liability is determined through the democratic process,
not through arbitrary, bureaucratic assumptions.
1999 JEC Report for Representative Jim Saxton (R-NJ)
• “In some cases, however, an item listed as a tax expenditure may not really be a
subsidy. Instead, it might be defensible on pure tax policy grounds as a proper
adjustment in computing ability to pay taxes.”
Citizens for Tax Justice

22. Largest Tax Expenditures
Top 10 Tax Expenditures 2009 – 2013 (billions) Avg
Deduction of mortgage interest on owner-occupied homes $573 $115
Exclusion of employer contributions for health care, health insurance
premiums
$568 $114
Exclusion of pension contribution and earnings $533 $107
Reduced rates of tax on dividends and long-term capital gains $419 $84
Exclusion of Medicare benefits $317 $63
Earned income credit $261 $52
Deduction of state and local taxes $250 $50
Deduction for charitable contributions $184 $37
Child tax credit $160 $32
Exclusion of capital gains at death $159 $32
Source: CRFB from JCT

23. Annual Federal Deficits 1941 through 1960
-35.0%
-30.0%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
-60
-50
-40
-30
-20
-10
0
10
20
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
Billions
Annual Surplus/Deficit (left axis) Share of GDP (right axis)
Source: OMB

24. Net Federal Debt Outstanding
0%
20%
40%
60%
80%
100%
120%
0
50
100
150
200
250
300
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
Billions
Debt Held by Public (left axis) Publicly Held Debt as % GDP (right axis)
Source: OMB

25. Net Federal Outlays by Category Over Time
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Net Interest Outlays
Other Mandatory Outlays
Mandatory Medicaid Outlays
Mandatory Medicare Outlays
Mandatory Social Security Outlays
Discretionary Outlays
Source: OMB

26. Mortgage Interest Deducted, by State
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
0%
5%
10%
15%
20%
25%
30%
35%
40%
Maryland
Connecticut
Colorado
Minnesota
Virginia
NewJersey
Utah
Oregon
Delaware
Massachusetts
Arizona
Georgia
Washington
RhodeIsland
NewHampshire
Wisconsin
Nevada
NorthCarolina
California
Idaho
Illinois
Michigan
Ohio
SouthCarolina
Maine
Percentage of Returns Claiming Deduction (left axis)
Average Deduction (right axis)
Source: IRS 2008, NAR Calculations

27. Mortgage Interest Deducted, by State
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
0%
5%
10%
15%
20%
25%
30%
35%
40%
Missouri
Pennsylvania
Florida
Vermont
Kentucky
Hawaii
Alabama
Indiana
Kansas
NewYork
Montana
Nebraska
Alaska
NewMexico
Oklahoma
Tennessee
Texas
Iowa
Wyoming
Arkansas
Louisiana
Mississippi
WestVirginia
SouthDakota
NorthDakota
Percentage of Returns Claiming Deduction (left axis)
Average Deduction (right axis)
Source: IRS 2008, NAR Calculations

28. Real Estate Taxes Deducted, by State
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
CONNECTICUT
MARYLAND
NEWJERSEY
MINNESOTA
MASSACHUSETTS
VIRGINIA
COLORADO
OREGON
UTAH
RHODEISLAND
NEWHAMPSHIRE
WISCONSIN
ARIZONA
WASHINGTON
DELAWARE
GEORGIA
ILLINOIS
NORTHCAROLINA
MICHIGAN
IDAHO
CALIFORNIA
NEVADA
MAINE
OHIO
VERMONT
Share of Filers Deducting Real Estate Taxes Average RE Taxes Deducted by Claimants
Source: IRS 2008, NAR Calculations

29. Real Estate Taxes Deducted, by State
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
MISSOURI
SOUTHCAROLINA
PENNSYLVANIA
IOWA
KANSAS
MONTANA
NEWYORK
NEBRASKA
FLORIDA
KENTUCKY
INDIANA
HAWAII
ALABAMA
OKLAHOMA
ALASKA
NEWMEXICO
TENNESSEE
WYOMING
TEXAS
ARKANSAS
MISSISSIPPI
SOUTHDAKOTA
NORTHDAKOTA
LOUISIANA
WESTVIRGINIA
Share of Filers Deducting Real Estate Taxes
Average RE Taxes Deducted by Claimants
Source: IRS 2008, NAR Calculations

30. Home Ownership Rates by Age, 1995 - 2009
39.7
66.2
74.4
79.5 80.5
35
40
45
50
55
60
65
70
75
80
85
Under 35 35 to 44 45 to 54 55 to 64 65 and Over
high low 2009 (rate labeled)
Source: Census Housing Vacancy Survey

31. Treasury and NAR Estimates of
First-time Home Buyer Tax Credit Usage
First Time Homebuyer
Credit for Houses
Purchased in 2009 -
Number of Filers 1, 5 /
First Time Homebuyer
Credit for Houses
Purchased in 2009 - Sum
of Credits Claimed 1, 5/
First Time Homebuyer
Credit for Houses
Purchased in 2009 - NAR
Estimated Eligible Buyers
2, 3 /
First Time Homebuyer
Credit for Houses
Purchased to Date - NAR
Estimated Eligible Buyers
2, 4 /
NORTHEAST 222,967 $1,603,737,508 575,159 639,805
SOUTH 684,314 $4,981,998,002 1,445,958 1,606,844
MIDWEST 386,087 $2,695,982,104 919,278 1,021,790
WEST 404,335 $3,024,271,352 855,545 951,481
OTHER 850 $6,466,598 not estimated not estimated
TOTALS 1,698,553 $12,312,455,564 3,887,109 4,322,094
1 / First Time Homebuyer Credits as of May 29, 2010.
(Copied from source:
http://treasury.gov/recovery/docs/Treasury%20Recovery%20Act%20Data%20as%20of%207-31-2010.xls).
2 / Sum of states is not equal to US total due to non-estimated areas
3 / NAR Estimated Eligible Buyers includes purchases through the end of February 2010
4 / NAR Estimated Eligible Buyers includes purchases from January 2009 to April 2010
5 / NAR aggregations of published Treasury data
Source: Treasury, NAR Estimates

32. Other Resources
• Facebook:
http://www.facebook.com/pages/NAR-
Research/73888294183
• Twitter:
http://twitter.com/NAR_Research
• Website:
http://www.realtor.org/research
• MID Benefit/Buying Power Calculator:
Available on iTunes