Analysts are examining who will benefit from the President’s Tax Reform proposal. Treasury Secretary Steven Mnuchin (right) said the plan will eliminate all personal tax deductions other than the mortgage interest deduction and charitable contributions.
The tax plan would reduce individual and corporate income tax rates, from 35% to 15%, and repeal state and local tax deductions. The plan also would double the standard deduction, effectively nullifying the current tax benefits of owning a home for the vast majority of tax filers.
C.A.R.’s Market Matters reports that although the mortgage interest deduction would remain under President Trump’s tax reform plan, “fewer homeowners would use it. The reason is that the standard deduction would be almost doubled, leaving the mortgage interest deduction only for homeowners who pay the most interest – those are the people with the biggest home loans.”
N.A.R. President William E. Brown said that major reforms are needed to lower tax rates and simplify the tax code, but that shouldn’t come at the expense of homeowners. While the President’s tax proposal released is “well-intentioned,” he said, it’s a non-starter for homeowners and real estate professionals who see the benefits of housing and real estate investment at work every day.
“For over a century, America has committed itself to homeownership with targeted tax incentives that help lower- and middle-class families purchase what is likely their largest asset. No surprise, real estate now accounts for over 19 percent of America’s gross domestic product, or more than $3 trillion in investment.
“But for roughly 75 million homeowners across the country, their home is more than just a number. It represents their ambitions, their nest egg, and the place where memories are made with family and friends.
“Targeted tax incentives are in place to help people get there. The mortgage interest deduction and the state and local tax deduction make homeownership more affordable, while 1031 like-kind exchanges help investors keep inventory on the market and money flowing to local communities.”
Brown notes that while housing accounts for more than 16% of the gross domestic product and more than $3 trillion in investment, American homeowners already pay between 80 and 90% of U.S. federal income taxes. He added that the Mortgage Interest Deduction and state and local tax deductions make homeownership more affordable, while 1031 like-kind exchanges help investors keep inventory on the market and money flowing to local communities.
“Those tax incentives are at risk in the tax plan released today,” Brown says. “Current homeowners could very well see their home’s value plummet and their equity evaporate, while prospective home buyers will see that dream pushed further out of reach. While we appreciate the administration’s stated commitment to protecting homeownership, this plan does anything but.”
Diane Swonk, an independent economist in Chicago, explained to The New York Times, “We have to distinguish between pro-profit and pro-growth policies. A pro-profit approach increases the share of the pie going to corporate earnings and shareholders. Pro-growth policies increase the size of the pie.”
Sources: C.A.R. Newsline and N.A.R.