A tax-reform proposal by House Republicans that would make the mortgage-interest deduction moot for most Americans is starting to set off alarm bells across the housing, lending and real estate industries.
The right to take a deduction for interest paid on your mortgage has always been a political third rail, and the reforms introduced last June would not directly eliminate the write-off.
Instead, the Better Way tax-reform “Blueprint” of Speaker Paul Ryan and his cohorts would make the deduction irrelevant for about 95 percent of homeowners. By “doubling the standard deduction that taxpayers receive…most people would have no need to take the mortgage interest deduction,” according to National Mortgage News.
The specific language in the Better Way says: “This Blueprint will preserve a mortgage interest deduction for homeowners. …For those taxpayers who continue to itemize deductions, no existing mortgage will be affected by any changes in the tax code. Similarly, no changes will affect re-financings of existing mortgages. But just as importantly, because of the other provisions included in the new tax system, far fewer taxpayers will choose to itemize deductions, with the vast majority of taxpayers finding they are better off by taking advantage of the larger, simpler standard deduction instead.”
Before the election, when it did not look as though Republicans would control both houses of Congress and the White House, the future of the Blueprint seemed far from certain, and even given the GOP sweep in Washington, it is nowhere near a done deal.
But National Mortgage News says the National Association of Homebuilders, the Mortgage Bankers Association and the National Association of Realtors (NAR) have all woken up to what they see as an “indirect threat” to the mortgage-interest deduction.
National Mortgage News quoted Lawrence Yun, chief NAR economist, as a warning against any moves that might derail the housing recovery. “Even a discussion of mortgage interest deduction is counterproductive right now,” he said.
A spokesperson for the NAR said Yun was unavailable to expand on that view given that under the Blueprint, most homeowners would still get the same break on their taxes.
But homebuilders, lenders and realtors may have more to worry about than House Republican attempts to neuter the mortgage-interest deduction.
In a CNBC interview on Nov. 30, Steve Mnuchin, Trump’s nominee for Treasury Secretary said in the context of a discussion on tax reform: “…We’ll cap mortgage interest but allow some deductibility.”
CNBC real estate reporter Diana Olick explained later that “The mortgage interest deduction is already capped at loans up to $1 million if you’re married and filing jointly and at $500,000 if you file separately. That said, the median price of a home in the United States is just more than $200,000, so not a lot of people make it to that cap.”
But, she added, the mortgage-interest deduction is seen as a key selling point for the housing industry and therefore is “a hot potato that lawmakers really don’t want to touch.”