Capping the Mortgage Interest Deduction

What areas would get hit the hardest if the mortgage interest deduction was capped?

From the Charlotte Observer:

Calif., N.Y., N.J. big for realty write-offs

Federal tax benefits for homeownership are among the heftiest and most popular of any in the Internal Revenue Code: an estimated $81 billion for mortgage interest write-offs, $15 billion for local real estate taxes and another $24 billion for capital gains exclusions this year, according to the congressional Joint Committee on Taxation.

But who really gets these tax-code goodies? Who gets to write off the most?

New research offers intriguing insights into where the billions of dollars in annual mortgage interest and real estate tax deductions flow, state by state, congressional district by congressional district. The research was conducted by the National Association of Home Builders, using the latest comprehensive IRS data available -- tax year 2003.
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Homeowners in a single congressional district in California -- the 14th District in Silicon Valley -- took more in mortgage interest write-offs than all the residents of six states combined. Homeowners in the 14th claimed $3.2 billion in mortgage interest deductions during the year covered by the study, compared with $2.9 billion by all the residents of Vermont, Wyoming, West Virginia, Alabama and North and South Dakota. The average deduction in the 14th District was $35,000, compared with an average of $9,500 for homeowners nationwide.
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Residents of a single congressional district on Long Island wrote off more in real estate property tax deductions than all the homeowners from seven states combined. Owners in New York's 3rd District took $1.25 billion in deductions -- more than the $1.2 billion total claimed during the same period in Hawaii, Wyoming, Arkansas, Delaware, the District of Columbia and North and South Dakota.
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The average New Jersey homeowner claimed $6,005 in real estate tax write-offs -- more than five times the average deduction by residents of Hawaii ($1,126). New Yorkers claimed an average $5,181 in property tax deductions, followed by the residents of New Hampshire ($4,830), Illinois ($4,129) and Vermont ($3,845).
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Though there are no active legislative threats to the mortgage interest and real estate benefits on Capitol Hill's docket, their sheer size and uneven distribution geographically make them perennially tempting targets for budget balancers seeking to increase federal revenues.
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A lower cap would also lessen the current system's huge disparities between the tax benefits received by residents of states with high housing costs and big mortgages -- primarily on the West and East coasts -- compared with the benefits received by residents of lower-cost jurisdictions in the Midwest, the South and Mountain states.