Update: Among Top Ten Housing Tax Expenditures Only 3% Goes to LIHTC

Published by Michael Novogradac on Wednesday, March 28, 2012 - 12:00am

Last week I reviewed the amount of housing-related tax expenditure cost that goes to the low-income housing tax credit (LIHTC), based on data for fiscal year 2009. Because of the market disruption at the end of the last decade, and the resulting enactment of the Section 1602 LIHTC cash grant exchange program, some have wondered if the 2009 numbers were a fair representation. 

So here I’ve updated the analysis using fiscal year 2011 data that was included in the Analytical Perspectives document that accompanied the proposed FY 2013 Budget of the United States Government. Based on the 2011 data, the low-income housing tax credit is the sixth largest housing-related tax expenditure in the tax code.

Even though the dollar amount associated with the LIHTC in FY 2011 is double that of FY 2009, and it moved up two spots in the cost ranking, the LIHTC is still a small tax expenditure relative to other housing-related tax expenditures. Of the 10 largest housing expenditures, by dollar cost, the LIHTC is only 3%.  By contrast, the five largest housing-related tax expenditures combined represent 93% of the ten largest housing-related tax expenditures in FY 2011.

Here are the top 10:

Housing Related Tax Expenditures

FY 2011 ($ millions)

Deductibility of mortgage interest on owner-occupied homes

$72,240

Exclusion of net imputed rental income

$46,950

Deductibility of State and local property tax on owner-occupied homes

$23,210

Capital gains exclusion on home sales

$15,060

Exception from passive loss rules for $25,000 of rental loss

$11,080

Credit for low-income housing investments

$6,150

Credit for homebuyer

$2,400

Discharge of mortgage indebtedness

$1,370

Exclusion of interest on owner-occupied mortgage subsidy bonds  

$1,060

Exclusion of interest on rental housing bonds

$900