The
federal income tax code has long favored home ownership over renting. A homeowner could claim an unlimited deduction for mortgage interest paid and state and local taxes incurred. The new tax law has turned this once advantageous situation on its head through a combination of an increased standard deduction, lower marginal income tax rates and limit on mortgage interest deductions.
It is estimated that the increased standard deduction (from $12,700 to $24,000 for a couple) will decrease the number of individuals that itemize on their tax returns from 44% to 14%. The new tax law also caps the amount of deductible property and other state and local taxes at $10,000 and lowers the mortgage interest deduction from $1,000,000 to $750,000. The end result is that a homeowners’ individual deductions may no longer be larger than their new standard deduction and will eliminate the need for them to itemize their deductions.
One recent study found that under the new tax law, so-called “breakeven” rents — the monthly amount above which renters are better off becoming homeowners — jumped significantly for upper-middle class and wealthy taxpayers.
