The impact will largely depend on where you live — and how much your house is worth
The GOP tax reform plan contains a number of changes that will affect homeowners and buyers alike.
Prior to the plan’s release, the housing industry sounded an alarm about changes to the deductions for mortgage interest and property taxes. While these popular deductions would remain in place, Republicans still plan to alter them in meaningful ways — which experts say makes it more complicated to determine who would be most adversely affected by the GOP’s legislation.
“Generally there’s a lot not to like about the House tax reform proposals from a housing perspective,” said Rick Sharga, executive vice president of online real estate marketplace Ten-X. “Virtually everything in there could be a problem for housing.”
Here’s how the GOP real-estate plan shakes out for consumers:
What are the biggest housing-related changes?
- The GOP’s proposal would limit the deductibility of mortgage interest to $500,000 — which is half of the current limit of $1 million. This limit would be imposed on mortgages used to purchase homes from Nov. 2, 2017 onward. Mortgages originated before then would be grandfathered in, as would refinances on homes bought prior to the cut-off.
- The mortgage interest deduction would only apply to principal residences. Currently, consumers can also apply it to second or vacation homes.
- Individuals will still be able to itemize deductions for state and local property taxes, capped at $10,000.
Tax benefits on money earned through the sale of primary residence would also change. As of now, a taxpayer can exclude from their gross income up to $500,000 for joint filers and $250,000 for others earned through a home sales. Taxpayers currently can take this deduction once every two years, and they must have owned and used their property as their primary residence for two out of the previous five years.
If the Republican plan is approved, taxpayers will be required to have owned and used the home as their main residence for five out of the previous eight years to qualify, and the exclusion could only be taken once every five years. The benefit would be phased out by one dollar for every dollar a taxpayer’s adjusted gross income exceeds the maximum amount ($500,000 for couples filing jointly, $250,000 for everyone else). So, for example, if a couple earns $200,000 in income, only $300,000 of the home sale would be excluded from their gross income.