HomeOwnership the American Dream

How will Tax Reform affect real estate taxes?

How will Tax Reform affect my real estate taxes?

Published: October 20, 2017
Updated: 11/6/17 and 12/2/17

Updated December 2, 2017

Early Saturday morning, the U.S. Senate passed their version of the tax bill by a vote of 51-49. The House version of tax reform passed on November 16. This epic bill was to address disparity for corporations but also has other effects on homeowners and tax payers across the board. It officially will change the face of homeownership in this country for decades to come and you’ll see how will Tax Reform affect my real estate taxes.

A last-minute change to the Senate version would make up to $10,000 in property taxes deductible for the small number of homeowners who would still be itemizing. This change specifically aligns with the property tax cap set in the House bill.

The main difference for homeowners is that the Senate version retains the deductibility of mortgage interest payments on up to $1 million of indebtedness; the House version caps indebtedness at $500,000 for those who would be itemizing their taxes.

Now, members of the House and Senate must meet to agree on a final bill. However, it’s not too late to make your voice heard by telling members of Congress that incentives for homeownership and the capital gains tax exclusion on the sale of a home MUST be protected.

Published October 20, 2017

With all the recent news surrounding the current administrations desires to spur tax reform for all US taxpayers, we felt it would be helpful to describe what COULD happen as the result of certain reform and explain how will Tax Reform affect real estate taxes and homeownership, the American Dream.


It has been reported by REALTORS throughout the country, including NAR (National Association of REALTORS) that the recent discussions around simplifying the tax code will

HomeOwnership the American Dream

in fact have an immediate impact on those who own homes. Many homeowners may actually lose their ability for federal income tax deductions – IF – the proposed legislation in Congress is passed in its current form (as of October 2017).

Over the past several decades, homeownership has decreased. While it’s currently moving upward, this increase in home owners may peak as a new tax code is embraced by Congress. The homeownership rate reached a peak of 69.2 percent in June 2004. A few years later, the housing crash caused credit to tighten and resulted in millions of Americans losing their properties to foreclosure. While the recent news of tax reform may have a negative impact on homeownership, it certainly is becoming more stable and healthy again just ten years after the major crash. Any tax reform affect real estate taxes in the way of changing deductions. Here’s a current look at the movement toward owning a home again.

HomeOwnership Rates 2016-2017

The number of those who own their home (legally known as real property) do so using a mortgage to help split up their payments. In addition, one of the benefits today is the home owner can also write off the amount paid in interest on these loans and the real estate taxes paid while living in the home. This can add up to substantial amount of savings to the owner versus the one renting a property.


So with a current proposal by President Donald Trump to raise the standard tax deduction, those who bought with the hope of these dedications may find out that they disappear in favor of broad tax reform. The long tail analysis may actually help increase homeownership in the long run because it will put more money into the pockets of Americans and give renters more incentive to save a down payment.

The current plan is expected to double the standard deduction and eliminate all personal deductions. The exceptions in the bill being proposed and discussed would be the deductions currently enjoyed by home owners for the Mortgage Interest Deduction and the deduction for charitable contributions. What it eliminated is the state deduction for state and local taxes.

While it sound promising that the mortgage interest can still be deducted, by doubling the standard deduction, they’ve also lowered the number of people who would be eligible to claim the Mortgage Interest Deduction with a proposed number shrinking to just the top 5 percent of all taxpayers.

As a REALTOR and PA real estate brokerage, we are alerting our local and state representatives that we are opposed to attempts to limit or eliminate tax incentives for homeownership and real estate investment. We know how tax reform affect real estate taxes in more ways than just a tax break.

UPDATE (November 6, 2017 after the proposal was made public with revisions)

“By eliminating or nullifying the incentive for homeownership, Realtors® are concerned that homeownership’s wealth-building potential could be pushed out of reach. The proposed tax reform caps the mortgage interest deduction at $500,000 for newly purchased homes. The legislation also eliminates state income tax deductions altogether, while installing a new cap on property taxes. At the same time, the proposal puts new restrictions on the capital gains exemption homeowners utilize today when they sell their home. The exemption is vital to allowing homeowners to use their equity to pay for retirement and other long-term needs. Tax hikes and falling home prices are a one-two punch that homeowners simply can’t afford.”
Kathy McQuilkin, CRS, GRI, SRES, CRP, CSP, ALHS
2017 Pennsylvania Association of Realtors® President


Homeowners already pay 83 percent of all federal income taxes.
Analysis shows that homeowners with incomes of $50,000 to $200,000 would face average tax hikes of $815 in the year after enactment (PricewaterhouseCoopers).
Non-homeowners in the same income range would enjoy average annual tax cuts of $515.

Since current homeownership is at an all-time low, we desire to see everyone who can afford the opportunity to afford a home be able to participate in the real estate market. With this new plan, it appears that fewer consumers will realize a financial benefit from owning a home. Sure renters will have more money in their pocket to possibly apply toward a down payment. But current homeowners will likely see a hike in their taxes.

Tax Reform affect real estate taxes


And as a result of this tax reform, PwC predicts home values will fall, in the short run, by more than 10 percent. The drop could be even larger in high-cost areas and it could take years for home values to rebound from this significant decrease. When you reduce the deduction, you reduce home affordability since you remove the extra deductions currently available.

Any reform of this type has an immediate and long term impact on the real estate market. Most people will not see this type of impact immediately, but once it works itself through a few years of tax returns and home buying seasons, the market will respond. It always does.

So before the real estate market corrects itself in response to a new tax code, pick up the phone and respond direct to your local and state representatives in congress today. Make sure they keep these deductions and other real estate vehicles currently available including Like-Kind exchanges. The Section 1031 provision encourages growth by permitting real estate held for investment to be exchanged for property of a like kind on a tax-deferred basis. These exchanges are essential to the commercial real estate sector and to the economy.

Thanks for participating in the conversation – homeownership and home prices may depend on it.

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