8-May-17 Housing advocates nationwide are turning their noses up at President Donald Trumps proposed tax plan which would double the standard deduction and, in effect, invalidate the tax benefits of owning a home.
Real estate now accounts for more than 19 percent of Americas gross domestic product, or more than $3 trillion in investment, said William Brown, president of National Association of Realtors (NAR).
||For roughly 75 million homeowners across the country, their home is more than just a number, said Brown (left). A home represents their ambitions, their nest egg, and the place where memories are made with family and friends. Targeted tax incentives are in place to help people get there.
The mortgage interest deduction and the state and local tax deduction make homeownership more affordable, according to NAR.
By doubling the standard deduction and repealing the state and local real estate tax deduction, the plan would effectively nullify the current tax benefits of owning a home for the vast majority of tax filers, Brown said.
In addition, tax deferred real estate swaps known as 1031 like-kind exchanges help investors keep inventory on the market and money flowing to local communities, Brown noted. The 1031 tax deferred exchange also would be eliminated under the proposed Trump tax plan.
Housing analysts say that every time a home is bought or sold, the transaction creates a ripple effect through the economy. New furniture, appliances, and furnaces are purchased and hundreds of millions of dollars are spent on home remodeling and landscaping projects.
However, NAR said real estate tax incentives are at risk in the plan recently released by President Trump. The outcome of the changes, should they be enacted, could be devastating to homeownership, according to Brown.
Current homeowners could very well see their homes value plummet and their equity evaporate if tax reform nullifies or eliminates the tax incentives they depend on, while prospective homeowners will see that dream pushed further out of reach, Brown said.
Doubling deduction could lower home values
National Association of Home Builders Chairman Granger MacDonald shared similar sentiments.
||(Left) Granger MacDonald (right in photo) and Vice President Mike Pence at The White House on February 28. (Image obtained from National Association of Home Builders.)
The changes could have an inverse impact, as well, on lower-income households, according to Diane Yentel, president and CEO of National Low Income Housing Coalition.
|By raising the standard deduction, President Trumps tax plan also would lead to fewer households claiming the mortgage interest deduction [MID], a $70 billion tax write-off that primarily benefits higher-income households, said Yentel (right). Without additional reforms to provide a greater tax benefit to low and moderate-income homeowners and to reinvest the savings into providing affordable rental homes to those with the greatest needs, Trumps proposal would amplify MIDs regressive effect. Only the wealthiest Americans would benefit.
In addition, William Brown pointed to the majority share of federal income taxes paid by homeowners, cautioning that they could shoulder even more responsibility if the changes take effect.
As it stands, homeowners already pay between 80 percent and 90 percent of the U.S. federal income tax, said Brown.
Without tax incentives for homeownership, those numbers could rise even further, NAR forecasts.
Common sense says that owning a home isnt the same as renting one, and Americas tax code shouldnt treat those activities the same either, said Brown. Major reforms are needed to lower tax rates and simplify the tax code but shouldnt come at the expense of current and prospective homeowners.
While the presidents tax proposal is well-intentioned, says Brown, its a non-starter for homeowners and real estate professionals who see the benefits of housing and real estate investment at work every day.
Regardless of the Trump tax plans impact on housing, a survey by NAR reported that nearly eight of ten Americans still believe that buying a house makes good financial sense. Heres why
Owning a home is one of the best ways to build long-term wealth. Historically, a homeowners net worth has ranged from 31 to 46 times that of a renter, reports the Federal Reserve Survey of Consumer Finances. Homeownership today still represents a familys primary means of financial advancement.
Homeowners are free to renovate, redecorate, and modify their homes as they wish. If you want to paint the walls or make a simple landscaping change, there isnt a landlord to stop you.
For many, homeownership is a lifestyle choice a place to raise a family, build memories, and be part of a larger community.