The home mortgage interest deduction is in peril if President Trump’s tax reform plan ever becomes law, but a look at which counties benefit the most from the deduction shows that if the deduction were eliminated or scaled back significantly it would have little effect in the Rockford area.
The Washington D.C.-based Tax Foundation looked at IRS data from 2014 to calculate the average mortgage deduction by county. Not surprisingly, the analysis showed that areas of vast wealth benefit disproportionately from the deduction because housing prices in those areas tend to be very high as well. The higher the cost of your mortgage, the larger deduction you can claim.
The 10 counties with the highest average deductions all come from the Washington D.C. area, California or Colorado. In Loudon County, Virginia, the average deduction in 2014 was $6,365 and 47 percent of filers claimed the exemption.
The Rockford area has long been one of the most affordable housing markets in the United States. The county seat of Loudon County, Virginia, is Leesburg and, according to the national real estate website Trulia.com, the median sale price of a home there is $485,000. Trulia calculates the median price of a home sold in Rockford at $103,000.
The vast difference in prices means a vast difference in average mortgage deductions. The Tax Foundation calculated the average deduction taken by someone in Winnebago County to be just $1,113. A look at northern Illinois and southern Wisconsin shows how much counties vary in benefitting from the deduction. Here are the average mortgage interest tax deductions in counties near Winnebago:
Not only are home values lower in Winnebago County than the nation as a whole, the home ownership percentage is high. According to Census estimates, 55.5 percent of housing units here are owner-occupied. In the U.S. as a whole, it’s 64 percent.
Critics of the deduction point out that it only goes to middle-income and upper-income families and encourages people to buy homes larger than they need, contributing to urban sprawl. By 2019, this deduction is projected to cost the federal government more than $96 billion, more than all rental subsidy programs combined.
Real estate professionals are fighting hard to keep the deduction, believing that eliminating it would lower property values since the deduction is a selling point. The National Association of Realtors believes it could lower home values by as much as 10 percent.