Senate Version of the GOP Tax Plan: How Would It Affect Housing?

Bill Clark/CQ Roll Call

Republicans scored a win on Friday as the U.S. Senate passed the GOP tax plan. But many homeowners and renters may not fare so well under the Tax Cut and Jobs Act, say housing experts. It depends on how much they earn and where they live.

The biggest difference in the Senate plan is that it would keep the number of tax brackets at seven, instead of knocking them down to four as the U.S. House of Representatives’ plan would. In the Senate version, the brackets would be adjusted, and in most cases lowered, so that more folks would pay a lower percentage of their income in federal taxes. That could leave more money in the pockets of many potential buyers and sellers.

In some more good news for homeowners, the Senate plan also keeps the mortgage interest deduction on loans up to $1 million for both primary and secondary homes combined. That’s different from the House plan, which would cap it at $500,000 and be good only on the primary residence.

A half-million dollars might sound like a lot—unless you live in a super-duper-expensive part of the country such as California’s San Francisco Bay Area or the New York metro region. The median home price in San Francisco is $1,300,000—and that’s for a fairly modest residence.

Nothing is definite yet, though, as the two congressional branches must come to a compromise on their competing tax plans. Then it must be signed into law by President Donald Trump, who is eager to do so before Christmas.

Under both plans, homeowners can write off up to $10,000 in property taxes (which should cover most homeowners). But both the Senate and House plans would no longer allow folks to write off state and local taxes. That’s likely to hurt folks who live in areas with hefty taxes such as the West Coast and Northeast.

By nearly doubling the standard deduction, to $12,000 for single tax filers and $24,000 for married tax filers, and getting rid of many other deductions (including for the interest on home equity loans), both plans are expected to discourage taxpayers from itemizing and taking the mortgage interest and property tax deductions. (The Senate plan also keeps a few other popular deductions, including those for some medical expenses, student loan interest, and charities.)

“More than half of middle-class homeowners are likely to see their taxes go up,” predicts Chief Economist Danielle Hale of realtor.com®. “The number who are going to be able to take advantage of itemized deductions, including the mortgage interest deduction, are going down.”

It’s worth noting that most Americans do not itemize. Just 21.5% of them claimed the mortgage interest deduction in 2015, according to the Pew Charitable Trusts. But those who do claim it get back an average $3,000, according to Moody’s Analytics.

“The cost of ownership is going to rise,” says Matthew Gardner, chief economist of Windermere Real Estate Co. The Seattle-based company has real estate brokerage in 11 states in the Western region of the nation.

“If you live in New York, New Jersey, California, you’re going to get hammered,” he says. “But if you’re in Nebraska or Texas, you could see some homeowners benefiting.”

If fewer folks buy homes as a result of the diminished savings, it’s likely to lead to more renters. And rental prices could rise as a result as competition for units goes up.

But sale prices could dip a bit, which would be good for priced-out, potential buyers. Meanwhile, sellers aren’t likely to be so happy.

“It might not necessarily be a bad thing,” Gardner says. “Home prices are rising well above normal rates.”

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