What was the point of Massachusetts' new tax break for renters?

This tax season, hundreds of thousands of renters in Massachusetts got a little something extra when they filed their returns.

Emphasis on a little.

Thanks to the tax bill passed by State House lawmakers and signed into law by Gov. Maura Healey last fall, renters can get an extra $50 upon filing their taxes in 2024 and beyond. The additional cash is due to an increased renter’s tax deduction in the roughly $1 billion package.

However, as Healey calls the state’s affordable housing crisis her top priority, some experts and activists question why the sweeping tax cut bill's main form of relief to renters was so marginal — barely enough to cover a month of internet (and maybe not even that). According to Zillow, the current median monthly rent for a one-bedroom apartment in Massachusetts is $2,600.

"Nobody is going to complain about getting $50 back, but it doesn't mean very much," Jonathan Cohn, the policy director for the left-leaning group Progressive Massachusetts (and a renter himself), told WBUR. "Given that many people's rents will go up by more than $50 each year, that’s not even combating one-twelfth of an annual rent increase for people."

Karissa Hand, a spokesperson for Healey, says the administration "was focused on passing a tax cuts package that would give the most benefit to the most people."

"The rental deduction expansion benefits 880,000 residents, many of whom are from lower-income households, and is just one of many tools we are using to provide relief from the high cost of housing," Hand said in a statement. She added the administration — which has continued to push for its $4.1 billion housing bond bill — "is always exploring additional ways to make life more affordable for the people of Massachusetts."

The benefit perhaps sounds bigger than it is. The deduction allows renters to write off half their previous year's rent when they file taxes — up to a certain limit. The tax bill increased that limit to $4,000 from $3,000. That means anyone who pays more than $8,000 a year in rent (or $666.67 a month) can claim the maximum deduction.

The important thing to note is this perk is a deduction, not a credit. You’re not getting $4,000 back; that’s just the amount that won’t be subject to Massachusetts’ 5% state income tax. So, under the new rules, the maximum benefit rose to $200 from $150.

It's easy to be confused about all this, especially since the $4,000 figure was widely trumpeted — in press releases and social media posts by the governor's office; in State House fact sheets; and by many local media outlets. Healey’s campaign even had sent out an email erroneously claiming renters would get $4,000 back from the deduction in their tax returns. A spokesperson later acknowledged that was a mistake.

"The way it gets sold is always like, let's talk about the value of the deduction, not the value of the credit people get," said Evan Horowitz, of Tufts University's Center for State Policy Analysis.

Horowitz added "it's worse than that" because the deduction is non-refundable, meaning it can't be claimed by particularly low-income renters who don't make enough to file a tax return. (Massachusetts residents who make less than $8,000 a year don't have to file a state tax return.)

"There are people for whom $50 is a big difference — are they going to be able to have dinner? But those people don't pay income taxes, so they don't get the $50," he said.

The renter's tax deduction doesn't go as far as it used to.

In fact, when it initially took effect in 1981 (as a part of Proposition 2 ½ ballot law), it didn't have a limit. At a time when, according to census data, the median gross rent in Massachusetts was just $255 a month, tenants could write off half of everything they paid. According to The Boston Globe, the average renter would get around $104 back on a tax return.

“We wanted to give the renters something,” Francis Faulkner, a leader of the group that pushed Prop. 2 ½, which was primarily aimed at limiting property taxes, told the Globe at the time.  

Massachusetts lawmakers then quickly moved to cap the rental deduction at $2,500 to limit the amount of revenue the state would lose. The cap stayed at that threshold from the early 1980s until 2001, when lawmakers raised it to $3,000, to catch up with skyrocketing housing prices and rents. During the same two decades, the median gross rent increased by roughly 270%, according to census data.

The deduction wasn’t revisited again until 2022, when then-Gov. Charlie Baker proposed raising the cap to $5,000 — what would have been a real increase of $100 a year for most renters. It came with an annual price tag of $77 million for the state.

Democratic leaders cut that proposal in half, settling on an increased cap of $4,000 before negotiations fell apart that summer. When Gov. Maura Healey took office in 2023, the $4,000 figure was the number her tax plan ran with — and eventually passed into law.

Doug Howgate, the president of the Massachusetts Taxpayers Foundation (which supported the overall tax bill), said using the tax code to provide relief to renters has remained attractive. For starters, people basically get the benefit automatically when they file their tax returns, meaning the administrative costs are "super low." While he said the modest increase in the renter's deduction was "directionally" the right move, Howgate said its impact has waned.

"We should probably update it more than once every 20 years," Howgate told WBUR.

Some Beacon Hill lawmakers did push for a bigger increase in the renter's deduction, which ultimately accounted for a small fraction — $40 million — of the roughly $1 billion tax bill. (By comparison, the tax cut for those with estates worth over $1 million will have an annual cost of $213 million for the state, according to an MTF analysis.)

State Sen. Lydia Edwards — a Democrat who represents parts of Boston, Revere and Winthrop — argued during a hearing on the tax bill last year that the rental deduction should be doubled or tripled as a matter of “equity.” State Rep. Rob Consalvo, a fellow Boston Democrat, also proposed an (unsuccessful) amendment to effectively increase the deduction cap to $6,000 — and up to $9,000 for lower-income renters (a value of $450 a year). In a statement to WBUR, Edwards said she believes what ultimately passed “was not enough.”

“I still feel that we need to increase it to acknowledge the fact that most renters are paying more than 30% of their income in rent,” Edwards said.

Policy experts note that, either way, a several-hundred-dollar deduction for renters is probably not going to move the needle much on the larger issue of housing affordability, especially when monthly rents cost thousands of dollars. And too large an increase could actually put upward pressure on rents, Horowitz said.

"Say it was really generous and you could deduct $25,000, it would get built into rents," Horowitz said. "Landlords [would] know, and they're driving up their prices."

The cost of a dramatic increase would also be "huge," Howgate said. At a time when the state is already grappling with tax revenue shortfalls, Howgate and Horowitz both suggested the best way to maximize the relief provided by the deduction would be to limit it to lower-income renters. (As currently structured, it doesn't matter if you're a millionaire; you can still claim that $200.)

"The people you really want to get to are people at risk of homelessness or people who might struggle to pay their rent," Horowitz said. "I think the only way to do it is with a refundable credit that has a really low cutoff."

Cohn credits the Healey administration for pursuing other, more "meaningful" measures to address the housing crisis in the multi-billion-dollar bond bill, which is primarily aimed at funding and encouraging more affordable housing. (Whether — or how much of — the bill passes before the end of the legislative session this summer remains to be seen.) Healey's administration has also moved to aggressively enforce the state's MBTA Communities Act, which requires cities and towns near the T to zone for additional multi-family housing.

By comparison, Horowitz says the rental tax deduction appears to have served more as part of a "marketing strategy" for the larger $1 billion tax cut bill.

"Renters really are struggling, rental prices really are high, and being able to say that you are doing something is very valuable politically," he said.