On Thursday, Republican lawmakers introduced the Tax Cuts and Jobs Act, a bill proposing major tax overhaul across income brackets, corporate taxes, and tax deductions. The long-awaited proposal may still incur some changes before it becomes law, but if passed the changes are scheduled to take effect January 1st, 2018.
Among the real estate-related revisions are the reduction in the mortgage interest tax deduction cap and the removal of state and local tax deduction. The mortgage interest tax deduction cap will be lowered from $1,000,000 to $500,000. In the original iteration, tax payers can still deduct up to $10,000 on the property taxes they pay locally, just not other taxes they may pay to state and local governments from their federal tax return. This is currently under review because of objections from high tax states like California and New York. Tax payers can still deduct up to $10,000 on the property taxes they pay locally, just not other taxes they may pay to state and local governments from their federal tax return.
The housing industry has had mixed reviews about the tax plan. Those in favor of the reduction of the mortgage interest tax deduction argue that although the cap is reduced, the higher standard deduction will free up disposable income to be saved for a down payment used on purchases, like a home.
Zillow’s Chief Economist Svenja Gudell spoke favorably of the proposed reform. From her statement, “the proposal to double the standard tax deduction is one piece of the Congressional Republicans’ tax plan that could put more money in middle-income Americans’ pockets. For many Americans struggling with high housing costs and for young adults paying high rents and dreaming of buying their first home, this could be something of a reprieve”
Others, like National Association of Home Builders Chairman Granger MacDonald spoke less favorably of the proposed changes. He said, “By sharply reducing the number of taxpayers who would itemize, what’s left is a tax bill that essentially eviscerates the mortgage interest deduction and strips the tax code of its most vital home ownership tax benefit.”
The 429-page bill would be the largest sweeping change to the American tax system since the 1980s. President Trump expects to see it on his desk by the week of Thanksgiving. If you would like to read the bill in full click here.