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5 tax deductions that favor the rich

Mortgage interest: a homeownership incentive?
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Mortgage interest: a homeownership incentive?

The mortgage interest deduction on your federal tax return is intended to encourage homeownership by giving you a tax break on the interest you pay on your house note.

There is little question it benefits millions of middle-class homeowners as well as the wealthy. But does it provide a compelling financial incentive to own rather than rent? Not so much.

According to a study by The Wharton School at the University of Pennsylvania, mortgage interest deductions for households with incomes between $40,000 and $75,000 average just $523, while households with incomes above $250,000 enjoy an average write-off of $5,459, or more than 10 times as much.

You must itemize on IRS Form 1040 Schedule A to claim the deduction. If you do, you can also deduct the interest paid on a second home. The rich do both, but most of the middle class does neither.

"For millions of taxpayers, therefore, the mortgage interest deduction provides no added incentive to buy a home," says Hanlon. "It makes no sense in terms of targeting the incentive at the people who need or could use it."


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