Many of the world’s wealthy countries provide fiscal incentives to homeowners. Yet, the impact of such tax breaks on housing tenure decisions is unclear. Using the difference-indifferences approach, this study estimates the effect of mortgage interest deduction on homeownership in the United States. The identification relies on the large changes in income tax rates and standard deduction. The largest of these changes increased income tax rate by as much as 23,9% and decreased standard deduction by 7,2% between 2002 and 2004. The baseline estimates suggest that increase in income tax rate in a state that allows mortgage interest deduction is associated to 3 percentage points increase in homeownership relative to states that didn’t change their fiscal policy and to 5 percentage points -relative to states that do not allow mortgage interest deduction but had a comparable increase in tax rates. The results are robust to a range of alternative specifications. Many of the world’s wealthy countries provide fiscal incentives to homeowners. However, the impact of such tax breaks on housing tenure decision is unclear. Many existing policies, aimed at promoting house purchases and widely used among taxpayers, have proved to be both expensive1 and not targeted, thus creating controversy about their overall effect. This paper aims to shed light on the effectiveness of such fiscal incentives by providing empirical evidences on their impact on housing tenure decisions. Specifically, this work focuses on the effect of mortgage interest deduction (MID) on home-ownership in the United States.