According to a 2015 Harvard University study, about 37 percent of the U.S. households are renters. Rep. Alan Grayson from Florida thinks the tax deduction field should be leveled between owners and renters. He has proposed a bill that would allow tax deductions for renters.
Of course, the deductions will vary by income levels but as an average example of how the bill is currently proposed, a taxpayer spending about $1,500 a month on rent (or $18,000 a year) could potentially save $4,500 annually through the deduction if he or she is in the 25% tax bracket.
Rents Raise, Income Doesn’t
For the past couple of years, rents have steadily increased but income hasn’t. Although income is now beginning to increase, following the Great Recession many people were forced to take low paying jobs. The recent increases aren’t even getting these people back to their previous income levels. Yet rents continue to go up.
About 49 percent of renters are considered cost burdened because they pay 30 percent of their income towards rent. Another 26 percent are considered severely cost burdened because they have to spend 50 percent or more on rent each month.
Some States Give Tax Credit to Renters
Some but few states do give state income tax breaks for renters. However, the laws vary greatly. The states that do typically only allow renter tax breaks to low income families and the elderly. For example, Indiana renters can deduct up to $3,000 from their state taxes if they meet certain requirements. In Connecticut the low-income, disabled, or elderly renters receive up to $700 if they’re single and up to $900 if they’re married.
Most bills of this type don’t pass the first time they are introduced. Many changes are likely to be made before Democrats and Republicans can come to an agreement. The one point of agreement that might keep the conversation going is that reducing rent costs could stimulate home ownership. Tax refunds or tax credits will possibly enable more poor income families o afford to purchase a home.
The mortgage interest tax deduction is a wealth building opportunity for home owners. However, the real need for the housing tax deduction is likely more needed for the low income that can’t get out of the rental cycle.
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Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for seven years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest. In the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.