Congressional Republicans unveiled the final version of their tax reform bill on Friday, and while the more-austere housing measures present in the House bill are absent in the one Trump will likely to sign before the end of the year, the bill stands to reduce affordable housing construction and weaken or negate many tax deductions related to owning a house.
The bill retains the 4 percent Low-Income Housing Tax Credit (LIHTC) and the Historic Tax Credit, both of which were repealed in the House bill. The 4 percent LIHTC funds a third of all affordable housing construction, while the HTC has been used to fund renovations to more than 40,000 historic structures since 1981.
But the bill also cuts the corporate tax rate from 35 percent to 21 percent, which will inherently lower the value of both credits, and thus lead to fewer affordable housing units and renovated historic buildings.
A similar dynamic exists with the state and local tax (SALT) deduction and the mortgage interest deduction (MID). SALT deductions are capped at $10,000 in the bill, and the cap on the MID was lowered from $1 million to $750,000 worth of mortgage loans. The House bill repealed all SALT deductions and capped the MID at $500,000, so this was the less severe of the two options.
But because the bill also doubles the standard deduction, fewer people will claim the MID and SALT deduction. Both SALT deductions and the MID affect mostly coastal blue states with high taxes and expensive housing markets.
The weakened SALT deductions could be a wash for a lot of taxpayers given the standard deduction, but the MID has long been a darling of the National Association of Homebuilders and the National Association of Realtors. Proposed changes to the MID prompted opposition to tax reform from both groups.
Critics believe the MID only helps upper-middle class and wealthy homeowners and that it inflates home prices, keeping some prospective middle class homeowners out of the market.
Here’s a breakdown of changes to housing measures in the new tax reform bill: