Economics

To make life more affordable, rent should be tax‑deductible

By Matt De Vlieger · November 3, 2023

It’s high time our political leaders took a bold step to ease the economic squeeze by making rent for primary residences tax-deductible.

We’re living in an era where economic hardships weigh heavily on countless individuals and families. The rising cost of housing has long posed a substantial burden, leaving many struggling to make ends meet.

Some people have been forced to leave their cities as cost of living soars post-pandemic and amidst inflation exacerbated by corporate price gouging. Making basic rent for most tenants tax-deductible is policy change that fosters fairness and provides an opportunity for the political system to make amends with the people it’s supposed to represent.

The Struggle of Renters

Across the nation, renters are feeling the financial pressure as they allocate a substantial portion of their income to secure a place they can call home. Recent statistics reveal that the average American household spends about 30% of their earnings on rent. For those with limited means, this figure can surge to an astonishing 50% or even more, making the quest for affordable housing an uphill battle.

Paying Rent for Life-Sustaining Activities

Rent is not just a financial transaction or a luxury. It’s not a “nice-to-have”— it’s a lifeline. Renting a home, for those who cannot afford to buy, enables life-sustaining activities, and a stable home serves as a primary base for employees to stage their work. It’s where they start and end their workday, prepare for their professional responsibilities, and decompress from the challenges they encounter. The significance of a secure, affordable dwelling cannot be understated.

A Tax Deduction for Rent: A Fair and Just Move

It’s high time for policymakers to bridge the gap in our tax code that currently favors homeowners over renters. Mortgage interest deductions are already in place, encouraging homeownership. It’s time to level the playing field by allowing renters a fair share of the tax benefits. Making rent tax-deductible is not only an act of economic fairness but also a powerful way to address the needs of the majority of the population who work hard for a living.

Relief for Low-Income Individuals and Families

The idea of a tax deduction for rent is not a mere suggestion; it’s a solution that can provide significant relief to low-income individuals and families who face a constant struggle to make ends meet. By freeing up funds that would otherwise go toward rent, this policy change allows for a more secure financial future. These funds can be allocated to other pressing needs, such as healthcare, education, or building a financial cushion for emergencies.

Supporting Existing Programs

Many programs are being put in place and with some success, to address the housing affordability crisis, but their reach and impact need to be expanded. Local Renters’ Credits offer tax relief to low-income renters in some cities, providing essential financial support. Affordable Housing Tax Incentives encourage developers to create affordable housing options, which, when expanded, can alleviate the housing shortage. Rent Control Policies help stabilize housing costs but need broader implementation to benefit more renters. Rental Assistance Programs directly aid renters, but their funding and availability often fall short. Local Housing Initiatives can be instrumental in building affordable housing and providing subsidies, but these initiatives must be amplified to make a more significant impact on the affordable housing crisis. It’s time to build upon these existing initiatives and take bolder steps toward making housing affordable for all.

What’s Already on the Books

Age and Disability-Based Benefits

• Arizona: Offers tax benefits to older and disabled renters.

• Colorado: Provides tax benefits to older and disabled renters as well.

Income-Based Benefits

• California: Allows renters with income below a certain threshold and rent payments above a certain percentage of income to claim a tax credit.

• Michigan: Offers the Homestead Property Tax Credit, taking into account property taxes, total household resources, and household income.

• Minnesota: Renters qualify for a renter’s property tax refund if they meet specific criteria, including household income below a certain amount.

• New Jersey: Gives renters the choice of a deduction or credit based on their rent payments.

• New York: Offers a potential $75 credit to renters with an average monthly rent of $450 or less. The credit increases for households with members aged 65 or over.

• Vermont: Runs the Renter Rebate Program for eligible renters, refunding a portion of rent paid if it exceeds a set percentage of household income. Eligible renters have an income of $47,000 or less.

• Wisconsin: Provides credit to renters with household income below a specific threshold, and it’s also available to disabled or older renters.

• Washington, D.C.: Offers the Individual Income Property Tax credit, giving renters with a household income of $20,000 or less a credit.

Rent and Property Tax Relationship

• Indiana: Allows renters to deduct up to $3,000 if the property they rent is subject to Indiana property tax. The deduction is capped at the total rent paid or $3,000, whichever is less.

• Maryland: Uses a formula based on total income for the year to calculate the potential renter’s tax credit, with a maximum limit of $1,000.

• Massachusetts: Limits rent deductions to 50% of rent paid during the year, up to a maximum of $3,000.

• Maine: Offers a property tax fairness credit based on income limitations and household size, applying to both renters and homeowners who meet the criteria.

• Pennsylvania: Provides a renter’s tax credit program, but specific details were not mentioned in the article.

Addressing Disparities

It’s essential to address the existing disparities in tax credits. While homeowners enjoy tax benefits like the mortgage interest deduction, renters often do not receive similar financial relief. This imbalance in the tax code leaves a significant portion of the population, primarily renters, without the support they need to address the rising cost of housing.

Making rent tax-deductible would help bridge economic divides, providing a fair and just solution to the challenges faced by those who make up the majority of our population — renters. This policy not only promotes economic fairness but also offers an opportunity for political leaders to represent the interests of the many who have long been underrepresented in the realm of tax policy.

We just need leaders who actually represent the people and who are brave enough to propose and pass these measures. These policies are working in many places. Is it time for federal legislative action? Whichever party or politician does take the lead on this, will be sure to win the support of the vast majority of people.