Brokers have been busy parsing the statement of principles issued in the spring by U.S. Treasury Secretary Steve Mnuchin announcing “a massive tax cut for businesses and massive tax reform and simplification.”
Brokers and real estate professionals from all corners of the industry have spent a good part of their busy season trying to predict what will actually happen with the federal tax code and how it will affect their clients. Yet, there isn’t a real consensus in the community despite Mnuchin’s promise that the mortgage interest deduction will remain intact. Under the statement, mortgage interest and charitable giving are the only two deductions being kept in the plan.
But while all agree that the mortgage interest deduction is a critical federal policy that incentivizes home-buying activity for millions of Americans each year, there are concerns that other major changes to the tax code—such as the doubling of the standard deduction—could render it useless. According to the National Association of REALTORS®, the plan would “impact the demand for owner-occupied housing by reducing the number of homeowners who claim the mortgage interest deduction, eliminating the itemized deduction for property taxes, and decreasing marginal tax rates.” As a result, home values could drop 8 to 12 percent in the short-term depending on the regional market, concluded the NAR report, which was backed by a financial review conducted by auditing giant PricewaterhouseCoopers.
Sam DeBord, managing broker of Seattle Homes Group and vice president of strategic growth for Coldwell Banker Danforth, does not think the comprehensive tax overhaul would benefit the housing market or the local communities that depend on those tax revenues. This is mainly because most won’t claim the itemized mortgage interest deduction, instead opting for the newly doubled standard deduction, which blocks taxpayers from claiming specific items such as mortgage interest.
“As for the proposed tax reforms from the administration, the mortgage interest deduction is not protected,” says DeBord. “The standard deduction would be altered to the point that it would take away 90 percent of mortgage interest deduction users’ ability to claim the deduction. It would remove the incentive to invest in real estate, which we know is most Americans’ primary route to wealth-building and retirement savings. Disincentivizing homeownership and investment in real estate is bad economic and social policy.”
He adds that such a move would also disrupt the plans of former homebuyers who made their real estate investments based on the financing equations dictated by the mortgage interest deduction.
“There are 35 million households who have purchased homes under the promise of the mortgage interest deduction and are claiming it today,” DeBord explains. “Changing the law now would be pulling the rug out from under the budgeting decisions they made based on current tax policy.”
With the mortgage interest deduction all but neutralized for so many homeowners and potential buyers, brokers are looking to other parts of the comprehensive tax reform to find new wealth-building strategies for their clients. One aspect getting a lot of attention is the plan’s removal of the alternative minimum tax …read more
From:: Finance and Economy