The tax bill being passed in Washington is expected to reduce the value of homes in almost all states. The home price droop will be caused by three provisions in the bill: the lowered cap on mortgage-interest deductions, from $1 million to $750,000; the cap on state and local tax deductions of $10,000; and the doubling of the standard deduction.Before the passage of the new law, homeowners can deduct interest they pay on their homes and second homes on loans up to $1 million in value. The present bill lowers the interest deduction allowed to $750,000.
Presently, taxpayers can deduct what they pay in state and local property and income taxes from their federal returns. Under the new law, taxpayers can only claim a maximum of $10,000, which can be any combination of income or property taxes. This hits high tax states like New York and New Jersey particularly hard.
When taxpayers file federal returns, they have a choice between itemizing their deductions or taking the standard deduction. The new law doubles the standard deduction from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for couples. With the standard deduction doubling, fewer taxpayers will itemize. This mean fewer people will be taking the mortgage interest deduction and the deduction for state and local property taxes. further This will mean house prices will likely go down.By almost doubling the standard deductions for individual and joint tax filers, the legislation blunts the advantage of the mortgage-interest deduction, which is often a key factor in home-buying decisions, particularly in pricey markets. The legislation also caps the deduction for state and local taxes at $10,000, a hammer blow to homeowners in high-tax states. Taken together, the changes significantly diminish the perks of homeownership built into the tax code.
According to Zillow about 23 million fewer people will purchase homes next year.
The National Association of Realtors, one of the largest and wealthiest lobby groups in the U.S., lobbied vigorously and unsuccessfully against the changes. Housing lobbyists said they first spotted trouble when a 2014 Republican blueprint from then-Chairman of the House Ways and Means Dave Camp proposed to nearly double the standard deduction. It neutered the mortgage-interest deduction by ensuring the vast majority of households no longer would be incentivized to itemize their tax returns.Jeffrey Newman represents whistleblowers.
