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Pending tax reform plans threaten to wipe out the tax benefits of owning a home for 95% of American families. Take Action Now.
What could tax reform mean to Rhode Island homeowners?
Of the approximately 241,000 owner-occupied houses in Rhode Island in 2014, 168,000 or 70% had a mortgage. In 2014, 135,900 taxpayers in Rhode Island claimed a deduction for mortgage interest (MID). The total amount deducted was $1,047,455,000. This means that the average taxpayer claiming the MID subtracted $7,700 from taxable income in 2014 as a result of the MID. At a marginal rate of 25 percent1, this means that the average taxpayer saved $1,930 in taxes as a result of the MID. The total tax savings from the MID in Rhode Island in 2014 was $261,863,750.
In 2014, 157,400 taxpayers in Rhode Island claimed a deduction for real estate taxes. The total amount deducted was $832,846,000. This means that the average taxpayer claiming the real estate tax deduction subtracted $5,300 from taxable income in 2014. At a marginal rate of 25 percent2, this means that the average taxpayer saved $1,320 in taxes as a result of the real estate tax deduction. The total savings from the real estate tax deduction in Rhode Island in 2014 was $208,211,500.
If the MID and real estate tax deductions were eliminated, the loss would not be a one-year event; homeowners lose out on these potential savings each and every year. The present value3 of these lost savings could total $12,053,211,500. The value of all owner-occupied real estate in Rhode Island in 2014 was $69,803,158,100. If the lost tax savings are fully capitalized into the price of houses, the average decline in value in Rhode Island could be 17 percent. From the individual perspective, the median-priced home in Rhode Island in 2014 was $214,800. A decline in value as projected could mean a loss in home value of $37,100 for the typical homeowner.
1 Marginal rates range from 10 to 35 percent.
3 Present value calculation assumes 3.9 percent discount rate and 1000 year time horizon.
Sources for the data above include: Internal Revenue Service 2014, American Community Survey 2014, National
Association of Realtors® 2014; All calculations are by the National Association of Realtors® Research Division, July