Tax incentives and housing decisions: Effects of the Tax Cut and Jobs Act

We investigate the 2017 Tax Cut and Jobs Act (TCJA) that altered the US tax code, greatly reducing itemization rates and effective homeownership subsidies. Using American Community Survey data and the NBER TAXSIM program, we estimate that the TCJA caused the average effective homeownership subsidy to decline 61% from $2,272 to $885. To uncover the TCJA's effects on homeownership and mortgage decisions, we use a simulated policy instrument that exploits state tax policy and housing market differentials. Comparing households that are similar in observable characteristics but vary in state exposure to the TCJA, we find that each percentage point decline in the effective homeownership subsidy rate lowered homeownership rates by 0.57 percentage point and mortgage use by 0.70 percentage point after the TCJA was enacted.