The Federal Income Tax In Relation To Housing

The impact of national tax policies on rental housing / Rolf Goetze -- The impact of national tax policies on home ownership / Leslie K. Meyer -- Discussion.

Describes 1997 law and various tax restructuring proposals with respect to individuals and families, and provides an analysis of issues relating to tax restructuring and the impact on individuals and families. Provides a description of present-law provisions relating to the individual income tax, payroll taxes, estate and gift taxes, and certain excise taxes. Describes the proposed tax restructuring alternatives. Analyzes issues relating to tax restructuring proposals and the taxation of individuals and families. Provides data on the marriage penalty or bonus under the Fed. income tax, and data on income and payroll tax liabilities of median income families.

It is well known that the preferential tax treatment of housing induces an inefficient allocation of saving and investment. This paper analyzes, in a portfolio framework, how eliminating the deductibility of mortgage interest payments for federal income tax purposes might affect investment in housing. Expected rate of return and risk is estimated for three assets, bonds, housing, and stocks. The possibility that assets are imperfect substitutes is explicitly recognized in one section of the paper. The model suggests that the share of housing is likely to decrease by 4 to 9 percentage points if mortgage interest payments are not deductible. This may call for careful phasing of the change in policy.