Author Ivy Truong// Editor Karim Mourad, Family, Real Estate

Tax Reform and Your Dream of Homeownership

The recently released tax reform framework promises to lower taxes for the middle class and create economic growth. However, restricting the Mortgage Interest Deduction to just the top 5 percent and repealing the deduction for state and local taxes would eliminate the time-honored tax incentives of owning a home for current and prospective homeowners.

Since it potentially affects real estate market, I searched for other professional point of view about this matter. I had a chance to meet with Mr. Skaggs, an experienced financial advisor at Skaggs Financing Planning LLC and this is his take on this tax bill:

The Bill limits mortgage interest deduction to interest on the first $500,000 of debt, down from $1 million. Property tax deduction remains, but is capped at $10,000. The Tax Policy Center estimates that the percentage of filers that actually claim the mortgage deduction would fall to 4% from 21% currently because the proposed bill will also double the standard deduction. It would no longer pay to itemize. Approximately 20% of people currently benefit from the deduction but that drops to just 5%, assuming the bill passes and the TPC is correct. (The personal exemption is eliminated and essentially being rolled into a higher standard deduction. This effectively eliminates many middle class tax deductions such as mortgage interest.)

In all likelihood, the relative price of home ownership will increase, but all other things should remain constant. Most likely a combination of slightly higher relative costs to borrowers, slightly lower home ownership rates, slightly lower home prices and slightly higher rents would create the new equilibrium. 

The impact might be particularly hard on starter homes where individuals must borrow and in high priced metropolitan areas where even modest home loans can exceed 500k and the percentage of homes without mortgages is lower. 

 The National Association of Realtors (NAR) has taken an unprecedented step, issuing a consumer call for action on this tax reform bill. It is urging 8 million consumers to oppose to the tax reform that would weaken the tax incentives for owning a home. What do you think about this proposed tax bill? If you disagree, please act before it is too late!

TaxBill PiggyBank

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