How it affects you
House Republicans recently unveiled a pretty massive tax bill that includes a limit on how much mortgage interest homeowners can deduct – capping it on mortgage debt up to $500,000 – which is down from the $1,000,000 we’re used to today.
This lower limit – if the bill passes – would not impact existing homeowners, but it would apply to all new mortgages.
This year so far, 5.4%* of all loans originated (or roughly about 325,000 loans) were for more than $500,000. While the medium home price across the US is currently at around $254,000**, the current deduction helps to make home buying more affordable, as buyers across the nation are facing higher prices as low home inventory is pushing prices up. Competition currently is causing bidding wars and a lack of affordable homes in many areas. As this trend continues, it would naturally increase the average home price to what we’re seeing currently.
Also under this proposed plan, you may want to think twice before taking out a home equity loan or line of credit, as this bill will not allow you to deduct the interest.
What’s in it for them
In order to claim the mortgage interest rate deduction, homeowners need to itemize on their taxes. But this tax overhaul would also nearly double the standard deduction, which could mean that fewer people utilize itemized deductions and move over to the standard deduction, thus elimination the ability to deduct their mortgage interest payments. Estimates are showing that the percent of filers who claim the deduction would fall from 4% to 21%***
Proponents for the bill have argued that implementing this cap would raise nearly $319 billion in tax revenues over 10 years, which could then potentially be used to lower everyone’s rates.
This mortgage interest deduction cap will more than likely become a point of dispute as the bill moves forward, with the home building industry already strongly voicing their opinion against the plan. The National Association of Home Builders has stated that there are 7 million homes on the market right now that are over $500,000, and the proposed cap would devalue the homes. The Association further states that once house values start to decrease in one market, it spreads to the next – and so on – and they fear a housing recession would closely follow.
Here are a couple more articles on the topic:
*Data collected from ATTOM Data Solutions
**Data collected from National Association of Realtors
***Data collected from The Tax Policy Center
(Cumberland Title strives to inform and educate about issues and topics affecting our industry, and will always do so in an un-biased manner. Our goal is to simply report facts, and thus we encourage you to seek out your preferred sources when it comes to news items to get a full range of views for the topic.)