Will New Tax Proposals Be the Death of Real Estate?

Many real estate professionals, lenders, and tax payers fear that the proposed income tax plans could drastically affect the housing market in a negative way.  These fears include more Americans choosing to rent instead of own, interest rates going up, and owners losing a ton of equity.  That is enough to scare anyone!  Although the tax plans have been crafted very quickly for overhauling such a complicated tax system, it shouldn’t be as bad as many are making it out to be.  Even with the proposed mortgage interest deduction limitations, there are positives for many tax payers.

mortgage interest deduction

Alan Thompson, CPA with Thompson, Price, Scott, & Adams, states that “All of the tax reform proposals are designed for economic growth.  While some of the proposals may seem to limit the high end housing market, growth should keep the market strong.”.


The House plan has already passed by a vote of 227-205.  Meanwhile, the Senate plan will be voted the week after Thanksgiving and is expected to pass.  Then, they will both be looking to work something out for the President to sign before year end.

“All of the tax reform proposals are designed for economic growth.  While some of the proposals may seem to limit the high end housing market, growth should keep the market strong.”

Mortgage Interest Deduction Versus Standard Deduction

If the standard deduction is doubled as proposed, then most media outlets would say that means it would be more beneficial to rent.  Reason being that so many would not be able to benefit from a mortgage interest deduction.  Although approximately only 21% of tax returns currently use the mortgage tax deduction!  You know there are a lot more than 21% of Americans that are homeowners!  Census.gov states that 63.9% of Americans are homeowners during the 3rd quarter of 2017.  So, it is obvious that many consider a tax deduction not to be a requirement to own a home.

Although the standard deduction could double, there will be some who can itemize that will still take the mortgage interest deduction.  The House plan allows up to $1 million loan amounts and the Senate up to $500,000.  Word is that the state income tax deduction would be lost in both plans.  In states with higher income tax brackets, this could affect the bottom line negatively for tax payers.  Furthermore, the Senate plan removes the property tax deduction.  Conversely, the House plan still allows up to a $10,000 deduction.

Do Buyers Really Buy for the Mortgage Interest Deduction?

Ok, there are buyers that say “I’m tired of renting and paying so much taxes.  I want to buy a home to save money on my income taxes.”.  Although, like mentioned above, many buyers will still take the standard deduction rather than claim the mortgage interest deduction.  So, if the standard deduction increases drastically, it will be a much lower number of people itemizing.  But, the growth projected from higher net incomes and growing businesses, owning a home is still going to be extremely popular.  Will rates continue to increase somewhat?  Probably.  Keep in mind, higher rates typically mean a stronger economy.  A stronger economy means more opportunity for Americans.

Barry Habib, mortgage industry expert with MBS Highway, gives a hypothetical example of the net savings as follows: [av_table purpose=’tabular’ caption=’MBS Highway Sample Tax Proposal Gains’ responsive_styling=’avia_responsive_table’] [av_row row_style=”][av_cell col_style=”]Income Bracket[/av_cell][av_cell col_style=”]$80k – $120k[/av_cell][/av_row] [av_row row_style=”][av_cell col_style=”]Home Purchase[/av_cell][av_cell col_style=”]$250,000[/av_cell][/av_row] [av_row row_style=”][av_cell col_style=”]Mortgage Tax Deduction Loss[/av_cell][av_cell col_style=”]$100 / month[/av_cell][/av_row] [av_row row_style=”][av_cell col_style=”]Gains in New Plans[/av_cell][av_cell col_style=”]$250 – $400 / month[/av_cell][/av_row] [av_row row_style=”][av_cell col_style=”]State Tax Bracket Assumption[/av_cell][av_cell col_style=”]5% Tax Rate[/av_cell][/av_row] [av_row row_style=”][av_cell col_style=”]Property Tax Assumption[/av_cell][av_cell col_style=”]$5000 / year[/av_cell][/av_row] [/av_table] Also, check out the chart MBS Highway shares with potential tax savings for Americans. mortgage interest deduction mbs highway Sign up for your free trial account for more valuable information like this here. Barry further states “I don’t think people buy a home for the tax break.  It is a bonus.”.  Plus, he explains the following about the tax plans: “The key point is that net, net, net, it is improvement for most people.” So, don’t think that real estate is going down the tubes and no one should buy a home.  Home ownership is still going to be a key wealth builder and cornerstone desire of most Americans.  It actually may be more affordable shortly!

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Written By: Russell Smith