The National Association of Home Builders (NAHB) formally announced its opposition to President Donald Trump’s tax reform proposal on Monday after the group was informed that tax credits for mortgage interest and state property taxes won’t be included in the bill.
Much of the housing industry believes the bill, which is expected to be unveiled on Wednesday, will diminish long-standing tax incentives that encourage homeownership, and thus negatively impact the housing market.
“This plan is particularly disappointing, given that the nation’s home builders warned that the proposal would severely diminish the effectiveness of the mortgage interest deduction and presented alternative policies that would retain an effective housing tax incentive in the tax code,” said NAHB chairman Granger MacDonald in the statement.
NAHB’s objection to the tax reform effort stems from Trump’s proposal to double the standard deduction and its potential effect on the mortgage interest deduction, which allows taxpayers to deduct the interest they pay on their mortgages from their taxable income.
In 2017, the standard deduction is $6,350 single taxpayers and $12,700 for married couples. Trump is proposing a $12,000 standard deduction for single taxpayers and $24,000 for married couples.
Currently, 70 percent of Americans use the standard deduction, according to the Tax Policy Center. If Trump’s proposal passes, it stands to reason that considerably more taxpayers would take the standard deduction and forego claiming itemized deductions like the mortgage interest deduction, and indeed, the Tax Policy Center estimates that Trump’s plan would reduce the number of itemizers from 45 million to 18 million.
This in turn would reduce the number of people who claim the mortgage interest deduction. Knowing this, NAHB and other housing industry groups lobbied for a mortgage interest and state property tax credit, potentially an even more valuable tax incentive to homeownership because tax credits are subtracted from your total tax bill, where as a deduction just reduces the amount of income that’s subject to taxation.
According to NAHB, House Ways and Means Chairman Kevin Brady (R-TX) had agreed to combine mortgage interest and property tax deductions into a tax credit during the group’s lobbying efforts. NAHB accused House Speaker Paul Ryan of reversing that plan, prompting the group’s announcement of opposition.
“By sharply reducing the number of taxpayers who itemize, what’s left is a tax bill that essentially eviscerates the mortgage interest deduction and strips the tax code of its most vital homeownership tax benefit,” MacDonald said in his statement. “This tax blueprint will harm home values, act as a tax on existing home owners and force man younger, aspiring home buyers out of the market.”
What’s unclear is how Trump’s plan would actually affect homeownership. Undoubtedly, fewer Americans would claim the mortgage interest deduction, but under the plan, most Americans would end up with a tax cut, which could contribute to buying a home.