The GOP’s new tax plan would deal a blow to many would-be homeowners.
According to a CNBC report, the 429-page Tax Cuts and Jobs Act was revealed Thursday. It is being promoted as a boon for hardworking middle-class Americans.
But Republicans have proposed paring down popular homeownership incentives, which would likely affect millennials and millions of people living in high-cost housing markets.
In its present form, the tax plan cuts the $1 million limit for the home mortgage interest deduction in half. The deduction allows homeowners to write off the interest they pay on home loans, effectively reducing their taxable income. The bill would apply to new home purchases and make it so homeowners can deduct interest payments on up to $500,000 worth of home loans.
The $500,000 mark is insufficient in many markets. Years ago, it may have been a typical mortgage amount for a first-time homebuyer, but today’s young people are different, noted Zillow CEO Spencer Rascoff, who noted Millennials are “skipping starter homes” and moving straight to the $1 million range when it is time to buy their first house.
Moreover, the size of a mortgage on a $1 million home would be $800,000 — assuming the homebuyer makes a down payment of 20 percent of the purchase price, though some are putting down as little as 10 percent. The proposed bill limits a homeowner to deducting interest on the first $500,000 of the loan. William E. Brown, president of the National Association of REALTORS® (NAR), said this would leave homeowners in the middle class vulnerable. It leaves them to shoulder the rest of the principal and interest payments without the benefit of a tax deduction.
“Eliminating or nullifying the tax incentives for homeownership puts home values and middle-class homeowners at risk, and from a cursory examination, this legislation appears to do just that.”
Jerry Howard, the CEO of NAR, estimated that 7 million homes would be excluded from the mortgage-interest deduction, amounting to about a third of the homes in California.
“You’re talking about potentially causing housing recessions in some of the biggest markets in the country, and those kinds of recessions tend to have spillovers. We’re worried about a national housing recession.”