If you’re wondering how much mortgage holders save from deducting mortgage interest, wonder no longer.
New data released by the IRS revealed that more than a quarter of the nation’s 143 million tax returns claimed the mortgage interest deduction in 2008.
Many who did not deduct mortgage interest either live in low-cost homes and don’t make enough to itemize deductions or have simply paid off their mortgages.
The average U.S. tax return that deducted mortgage interest claimed $12,221.
Maryland had the highest percentage of tax returns claiming the deduction at 37.9 percent, while California had the largest mortgage interest deduction, averaging $18,876. However, only about three in 10 deducted mortgage interest in the Golden State.
The mortgage interest deductions vary from state to state for two main reasons.
“First and most importantly, some states have higher average incomes. In those states, people leverage their incomes to take out huge loans for expensive homes,” the Tax Foundation said in a statement on its website.
“The large monthly mortgage payments that result are, with frequent refinancing, mostly interest payments, not payments on principal. This maximizes the amount deducted, and since these same high-income people are thrust into a higher marginal tax bracket by the federal income tax’s progressive rate structure, the deduction saves them substantially more.”
Additionally, renting is more prevalent in certain parts of the country, such as in NYC, which drags down the average mortgage deduction despite the existence of expensive homes in the state.
Mortgage interest became tax deductible in 1913, and is known as one of the largest tax loopholes because mortgages don’t produce taxable income, unlike small business loans for example.
Mortgage Interest Deduction by State
(top photo: alancleaver)