House Republicans announced their new tax bill Thursday, which would bring sweeping changes to the housing industry.
The Tax Cuts and Jobs Act will slash the mortgage interest deduction in half from $1 million to $500,000, double the standard deduction and reducing the capital gains exemption, allowing homeowners to deduct profits from a home sale only once every five years, instead of two.
And the mortgage industry is uniting against the bill.
An analysis shows Californians could get hit the hardest under the new tax plan, so it is no surprise the California Association of Realtors announced its preliminary concern with the tax plan.
“We are currently reading through the bill proposed today to determine the exact impact it will have on California homeowners and its housing market,” CAR President Geoff McIntosh said. “From what we have seen so far, limiting the mortgage interest deduction to $500,000 will no doubt hurt homeownership in states with high housing costs such as California.”
The National Association of Realtors agreed with the California chapter’s response, saying Realtors cannot support a bill that could hurt homeownership.
“This legislation closely tracks with the House Republican Blueprint for tax reform, which threatens home values and takes money straight from the pockets of homeowners,” NAR President William Brown said. “Realtors believe in the promise of lower tax rates, but this bill is nowhere near as good a deal as the one middle-class homeowners get under current law. Tax hikes and falling home prices are a one-two punch that homeowners simply can’t afford.”
“The nation’s 1.3 million Realtors cannot support a bill that takes homeownership off the table for millions of middle-class families,” Brown said. “We know this legislation is just the beginning of a much longer discussion. Our members will continue to make their voices heard as we push towards tax reform that responsibly lowers rate while protecting the dream of homeownership.”
Although the National Association of Home Builders previously announced it was rethinking its stance on the mortgage interest deduction after seeing the House’s previous tax plan, it voiced its clear disapproval of the new bill.
“The House Republican tax reform plan abandons middle-class taxpayers in favor of high-income Americans and wealthy corporations,” NAHB Chairman Granger MacDonald said. “The bill eviscerates existing housing tax benefits by drastically reducing the number of home owners who can take advantage of mortgage interest and property tax incentives.”
“And capping mortgage interest at $500,000 for new home purchases means that home buyers in expensive markets will effectively lose this housing tax benefit moving forward,” MacDonald said.
Other experts, even those who previously explained they are not attached to the mortgage interest deduction, agreed with NAHB’s outlook, saying the new tax plan is a missed opportunity for the Trump administration.
“The bill is a missed opportunity to make homeownership more affordable to more people,” Redfin Chief Economist Nela Richardson said. “While the new $500,000 cap on the mortgage interest deduction is intended to limit the benefit for the wealthiest homeowners, it also limits the benefit for first-time buyers in expensive coastal markets where it’s hard to find a starter home at that price.”
“We urge lawmakers to reconsider a homeownership tax credit like the one proposed by the National Association of Home Builders that would make homeownership accessible for more of the middle class,” Richardson said.
NAHB explained it proposed a plan that was agreed to by House tax-writing committee leaders and would provide a homeownership tax credit to 37 million additional homeowners who don’t currently itemize, however this plan was killed in the final bill.
Capital Economics predicted the bill will be passed, with a few amendments, by late 2017 or early 2018.
“The House GOP tax bill released earlier today suggests that Republicans are edging towards their goal of passing tax reform this year,” Capital Economics Economists Andrew Hunter and Michael Pearce wrote in a report. “The proposals would add $1.5trn to the deficit over ten years, as already agreed to in the Budget resolution.”
“The bill will inevitably be amended further over the coming weeks, particularly when it goes to the Senate,” the report said. “Nevertheless, on balance, we still think a similar-sized package of tax cuts will be passed by early next year, giving economic growth a one-off boost in 2018.”
And despite the pushback from the mortgage industry, Speaker of the House Paul Ryan made the case that lower taxes will enable Americans to better afford a home, even without the mortgage interest deduction. Watch Ryan made the case for the new tax reform in Skimm interview here.