Trump’s Tax Proposal and the Real Estate Market
Rumors have been flying regarding President Trump’s latest tax plan.
While details on the plan still appear to be a little fuzzy, a few concepts that have emerged so far are causing quite a stir in the real estate market—with half of the industry being for the proposal and half voicing very audible concerns.
According to individuals that have been briefed on the plan’s proposal, a business tax rate would be vastly reduced. The rate, which presently sits at 35%, would be decreased to 15% for corporations and companies that currently pay taxes through a personal tax code, which is believed to be about 60% of businesses in the US. This includes everything from mom and pop businesses to real estate empires like Trump’s own organization.
For individuals, the proposed tax package would increase standard deductions for middle-income people. The proposal is also said to help simplify the process of filing tax returns as an individual, as well.
Vocalized resistors of the plan include home builders and real estate agents. They are citing many reasons for their opposition; however, the most forward reason is that the proposed plan would weaken the significance of the mortgage interest deduction. They also believe that, if enacted, the plan would require eliminating or cutting other well-liked deductions.
The one-page outline recently released does imply that President Trump wants to keep the current mortgage interest deduction though, as well as double the standard deduction. Under the current tax plan, homeowners are able to deduct interest on mortgages valued up to $1.1 million. This means an individual is able to lower the amount of income they pay taxes on, thus increasing the benefit of owning a home while simultaneously lowering the cost.
The catch with this deduction, and the reason supporters of Trump’s plan believe it will simplify tax returns for individuals, is that homeowners have to itemize their deductions. Under the new plan, the standard deduction would double the standard deduction without the need of itemizing.
Shortly after the proposal’s summary was released, the National Association of Realtors released their statement in response. They argue that the proposed tax plan would “effectively nullify the current tax benefits of owning a home for most people.” According to the NAR President, William Brown, current homeowners will see the value of their homes decrease substantially if this new tax plan goes into effect.
He also believes that prospective home owners could see their dreams of owning a home further from their grasp than ever.
Brown and the NAR are not the only ones showing concern regarding this possible tax plan.
The Chairman of the National Association of Home Builders, Granger MacDonald, released a statement saying, “Doubling the standard deduction could severely marginalize the mortgage interest deduction, which would reduce housing demand and lead to lower home values.”
Others, however, believe the tax plan could increase housing demand.
Ralph McLaughlin, chief economist at home search site Trulia, said, “Any time there are tax cuts and home buyers have more money in their pocket, some of that money they are more likely to dedicate to housing.”
While there is much speculation about President Trump’s newly proposed tax plan, it is unsure if the bill will pass through the House.