A potential tsunami could be poised to hit the real estate industry and send shockwaves through many agents’ clients.  A tax break that is popular today with homeowners and the real estate industry could be in the crosshairs as Republicans in Congress seek options to pay for their tax reform plan.

Even though the Trump administration made a declaration in April that it would “protect the homeownership … deductions,” Politico reports that multiple sources tracking tax reform said that the cap on the mortgage interest deduction — which currently is set at the interest on up to $1 million of mortgage debt — could be lowered in tax reform.

Gary Cohn, Director of National Economic Council

The decision would be hard to take for an industry that stood behind Trump in his presidential run. However no decision has been made as Republicans work during Washington’s dog days of August to create a proposal that will be easy to swallow politically and also meet the criteria for the budgetary maneuver they hope to use to bypass Democrats who could hold up a bill in the Senate. It would seem that lowering the cap on the mortgage interest deduction would help offset tax cuts for individuals and businesses.

As it turns out, the mortgage interest deduction creates sides that are divided more along parochial than ideological lines, with both Republicans and Democrats criticizing the deduction as being more useful for wealthy taxpayers than the working class that it was intended to help get into homes. However, it has weathered past attempts at elimination because it is popular with homeowners in more pricey areas. The real estate industry also has railed against past efforts to cut it. Ryan Ellis, a conservative tax lobbyist, noted it has little Republican support.

“There’s not a lot of conservative support for the mortgage interest deduction.”

However, conservative support for cutting the deduction, combined with some trial balloons from the Trump administration signaling that a reduction could be a part of a broader tax reform package, has the real estate and building industries concerned, including National Association of Realtors President William Brown.

“Limiting the mortgage interest deduction amounts to a de facto tax increase on current or future homeowners while putting homeownership further out of reach for prospective buyers. We would have strong objections over any effort to further cap or limit the deductibility of mortgage interest.”

Speaking with conservative groups late last month, House Speaker Paul Ryan, doubling of the standard deduction could be a goal in tax reform. In a statement regarding Trump’s tax goals, NAR issued a statement detailing its position.

“By doubling the standard deduction and repealing the state and local tax deduction, [Trump’s] plan would effectively nullify the current tax benefits of owning a home for the vast majority of tax filers.”