How Trump’s Tax Plan Will Impact Homebuyers and Owners

Some real estate experts doubt whether President Donald Trump’s proposed tax cuts for helping the middle-class and spurring business will be good for the housing market.

At the heart of their skepticism is boosting the standard deduction, which in effect would reduce an individual’s taxable income. Although the deduction for mortgage interest would still be available, the larger standard deduction would render it useless. Homebuyers typically use the interest deduction to shave $8,000 to $10,000 off what they owe the Internal Revenue Service during their first year of homeownership, says Joseph Kirchner, senior economist realtor.com. But most taxpayers would opt instead for the $12,000 standard deduction for individuals and $24,000 for married couples filing jointly.

“This proposal recommends a backdoor elimination of the mortgage interest deduction for all but the top 5 percent who would still itemize their deductions. When combined with the elimination of the state and local tax deduction, these efforts represent a tax increase on millions of middle-class homeowners,” says William Brown, president of the National Association of Realtors.

That change could make owning a home more expensive and drive up prices in coastal cities, says Matthew Gardner, a senior fellow at the Institute on Taxation and Economic Policy. But Roberton Williams, senior fellow of the Tax Policy Center contends that the mortgage interest deduction doesn’t motivate people to buy a house. Instead it encourages those who already have decided to buy to spend more money on a larger house, because they are likely to get some of that money back on their tax return.

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