GOP leaders revealed an outlined for comprehensive tax reform on Wednesday. However, the National Association of Realtors believes the plan will lead to a tax on homeownership for millions.
The new tax reform changes the current tax code to eliminate provisions like state and local tax deductions, doubles the standard deduction, and eliminates personal and dependency exemptions.
NAR believes the tax increases for homeowners would remove the incentive for many to purchase a home. This would have a major effect on the real estate industry and home values, as only the top 5 percent of Americans who still itemize their deductions have the opportunity to benefit from the mortgage interest deduction.
“When combined with the elimination of the state and local tax deduction, these efforts represent a tax increase on millions of middle-class homeowners,” said NAR President William E. Brown. “That tax increase flies in the face of a reform effort ostensibly aimed at lowering the tax burden for Americans. At the same time, the lost incentive to purchase a home could cause home values to fall.”
Earlier this year, NAR raised concerns about tax reform proposals by President Donald Trump, as an estimated 40 million homeowners are expected to deduct $206 billion in local tax expenses in 2018.
Households with mortgage balances between $100,000 and $500,000 would see an income tax increase on average, while households with a mortgage greater than $500,000 would actually see a net decrease in tax liability because of the shift in income tax brackets, according to NAR.
Homeowners making between $50,000 and $200,000 would see an average tax increase of $815 under Trump’s plan, while non-homeowners making the same amount would see an average tax reduction of $516.
“Congress can still score a win for American families by promoting lower rates and comprehensive reform that doesn’t single out homeowners for a tax hike, while also preserving important investment incentives like 1031 like-kind exchanges,” Brown said. “We look forward to continuing the discussion in the weeks and months ahead.”