TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, June 5, 2012

The Home Mortgage Interest Deduction in the States

Tax AnalystsDonald Morris & Jing Wang (both of the University of Illinois-Springfield, Department of Accounting), How and Why States Use the Home Mortgage Interest Deduction, 64 State Tax Notes 697 (June 4, 2012):

[T]he home mortgage interest deduction primarily benefits upper-income taxpayers and ... the states should consider other ways of encouraging homeownership, if they do want to encourage it....

Of the 41 states that impose a tax on all forms of income, 31 (75%) permit income to be reduced (at least potentially) by a deduction for home mortgage interest. Of those 41 states, 28 (68%) use federal AGI as a starting point for developing their tax base. An additional six states (15%) use federal taxable income as the starting point in developing their tax base. For the remaining seven states, taxable income is computed independently of the federal formula. Also, two states (Tennessee and New Hampshire) tax only investment income and seven states (Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming) impose no income tax. These results are summarized in Table 1, along with the number of each of those states that offers a deduction for home mortgage interest.


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