A Renter’s Tax Credit: Improving Affordability through the Tax Code

Author: Carolina Reid

One of the first papers we published at the Terner Center, in November 2016, was an analysis of the costs and benefits of a federal renter’s tax credit. We see incredible potential in using the tax code to address rental cost burdens, one that remains largely untapped by state and federal policymakers. 

In 2025, federal lawmakers will have a window to change this, as key provisions from the Tax Cuts and Jobs Act are set to expire. In those conversations, a Renter’s Tax Credit should be on the table for discussion.

The urgency of developing new approaches for addressing rental cost burdens has only increased since 2016. The number of cost-burdened renters has reached an all-time high. Of renters earning less than $30,000, 83 percent are cost burdened, leaving them with an average of $170 a month for all other expenses. At the same time, evidence for the power of the tax code to deliver assistance has only increased.  During the pandemic, the expansion of the Child Tax Credit helped reduce child poverty to the lowest level on record. It also demonstrated that tax credits could be delivered monthly, and that tax payments are an effective approach to delivering assistance to the majority of eligible households.

A renter’s tax credit could also help rebalance who benefits from federal housing tax policies.  Federal expenditures for homeowners totaled nearly $40 billion in fiscal year 2022. These housing-related income tax benefits flow primarily to higher-income tax filers; those with incomes of $100,000 or more received over 95 percent of the benefits from the federal mortgage interest deduction in 2022. This housing assistance also disproportionately goes to non-Hispanic white households, reinforcing racial disparities in homeownership and wealth.

 In Options for Addressing Rent Burdens Through the Tax Code: Considerations for Designing a Renter’s Tax Credit, we revisit the idea of a renter’s tax credit.  Published in collaboration with the Stanford Center on Poverty and Inequality, the report lays out how different options–such as whether the credit is universal or targeted, refundable or non-refundable, or pegged to income or housing cost burden–may shift who benefits and/or achieve different policy goals. Where possible, the report illustrates the different effects of these decisions for renter households in California.

The goal of this report is to stimulate discussion. The specifics of a renter’s tax credit will have to take into account many different factors. For example, should a credit be funded from state or federal budgets, or a combination of both? How might a renter’s tax credit work in the context of an existing (or expanded) Housing Choice Voucher program? What other complementary tax investments – such as the Earned Income Tax Credit or Child Tax Credit – will be in place, and how might a renter’s tax credit reach a different set of households? 

Now is an opportune time for policymakers to begin weighing these trade-offs. Presidential candidates and other elected officials from both parties recently put forward a number of housing-related tax proposals; one that would directly benefit renters should also be up for debate.  

Read the full report here.