One of President Trump’s many hardline campaign promises centered on extensive tax reforms that he assured us would lower the tax bills for American families. That’s all well and good.
In fact, there was a Republican tax reform plan in the works long before President Trump took office, informally dubbed the “Better Way for Tax Reform.”
Not happy campers
A new study, commissioned by the National Association of Realtors (NAR) and prepared by PricewaterhouseCooper (PwC) closely examined the “Better Way” proposal, as well as the tax reform outline the White House released in April. The study, “Impact of Tax Reform Options on Owner-Occupied Housing,” found that, if comparable reforms are enacted, many middle-income homeowners may actually face tax increases, rather than the promised cuts. And NAR is not pleased.
The study showed that, while most individuals would receive a tax decrease under these reforms, middle-class homeowners may get the short end of the stick.
Homeowners with adjusted gross incomes between $50,000 and $200,000 could see their tax bill go up by an average of $815.
Loss of savings too
And not only will these middle class homeowners be on the hook for more taxes – they’ll also lose a ton of tax savings. The study estimates that between 2018 and 2027 (in the next ten years), these tax reforms could eliminate 82 percent of the mortgage interest deduction and the real estate property tax deduction.
NAR is ready to fight against this shortsighted slight of homeowners.
“Tax reform and lower rates are worthy goals, but only if we can achieve them in a fiscally responsible way,” said William E. Brown, president of NAR “Balancing tax reform on the backs of homeowners isn’t an option.”
The negatives keep going
As if higher taxes weren’t bad enough, the study also found that a tax reform of this nature could devalue homes by an average of over 10 percent in the near future.
Areas with higher property taxes, and/or state income taxes, could face an even steeper drop.
Pertinent elements in the proposed tax reform plans include: lowering and consolidating marginal tax rates to just three rates; setting the top income tax rate at 33 percent; doubling the standard deduction; scrapping all personal exemptions and all itemized deductions, aside from charitable contributions and mortgage interest, and removing the alternative minimum tax.
PwC estimates that about 35 million households will be claiming the mortgage interest deduction in 2018.
75 percent of those households have incomes between $50,000 and $200,000. NAR estimates that, of those eligible, about 70 percent claim the mortgage interest deduction each year.
“A tax reform proposal that hikes taxes for homeowners is a raw deal, and consumers know it,” says Brown. “Leaders in Washington who are driving tax reform have shown every indication that they have the best of intentions, and we’re hopeful they’ll consider our study as this process plays out in the months ahead.”
It’s important to note that, though NAR is aggressively against any decrease in the mortgage interest deduction, this is by no means an anti-Trump move, or an anti-reform move. This is a long-fought battle on NAR’s part, and they will continue to fight specifically to protect homeownership.