Summary: Since states have different income taxes, the marginal tax rate in the top tax bracket varies across states. According to the tax arbitrage theory of homeownership, the frequency of homeownership in any given tax bracket ought to be lower in states with higher top tax rates. To test this hypothesis, we estimated a probit model of homeownership using data on over 16,000 families from 38 different states. As hypothesized, we found that a family was less likely to own its home if it lived in a state with a high top tax rate. We also found that it was more likely to own its home if it had a high marginal tax rate.