How the GOP plan could affect homeowners
Congress is considering a tax change that could “reduce or eliminate virtually all of the tax benefits of homeownership,” said Laura Kusisto in The Wall Street Journal. The GOP tax reform bill proposes to slash in half the size of home loans that qualify for the mortgage interest deduction, from $1 million to $500,000, and eliminate entirely the deduction for mortgage interest on second homes. The bill would also cap property-tax deductions at $10,000 a year, “a blow to homeowners in high-tax states like New York and New Jersey.” To home builders and brokers, these changes amount to a “declaration of war,” said Jordan Weissmann in Slate.com. The mortgage-interest deduction is “baked into the value of today’s homes, and seriously curtailing it will hurt their worth,” which could put a damper on sales, refinancings, and new builds. At the same time, Republicans have proposed doubling the standard deduction that all Americans can take, to $24,000 for couples. “As a result, fewer taxpayers are likely to itemize” on their tax returns, which will reduce the overall tax advantages of owning a home. The GOP is “setting up an extremely high-stakes battle—not just with a powerful industry, but possibly with every homeowner in America.”
“If there is a flaw in this plan, it is that it does not go far enough,” said Ilya Somin in TheHill.com. The mortgage-interest deduction is one of the five costliest tax deductions, costing the government $77 billion a year, and should be done away with entirely. “It produces little benefit,” except to subsidize the purchase of bigger, more expensive homes, and “nearly all of the gains go to affluent taxpayers who are likely to own homes even without it.” Not many people will be affected by this change, said Christopher Ingraham in The Washington Post. Only about 2.5 percent of Americans are paying mortgages on homes valued at $500,000 or more, and those loans will be grandfathered in. If you can afford a down payment and monthly mortgage on a house of that value, “you’re not exactly struggling financially.”
Yes, this change mostly “serves as a tax increase on the rich and on upper-middle class residents of expensive cities,” said Matthew Yglesias in Vox.com. It would probably most hurt people who already own expensive homes, whose resale value will decline. But “precisely because very few people will pay this tax, the change is unlikely to raise much money.” So what is the point of hurting fairly well-to-do homeowners to help fund tax cuts for even wealthier business owners and heirs of major estates? It’s worth remembering that “nothing may come of any of this,” said Ron Lieber in The New York Times. After the demise of the healthcare bill, there is little reason to believe Republicans can pass tax reform intact. Still, if I were you, I’d be “wary of home purchases that depend on tax laws’ staying the same.”