It’s far from clear that any major reforms to the tax system are coming anytime soon. There is plenty of disagreement in Congress over who should receive tax cuts (individuals, businesses etc.) and how those cuts can be achieved without substantially increasing the federal budget deficit.
Tax policy plays an important role in the real estate industry. That’s why the National REALTORS® Association and other groups involved in the housing business are paying close attention to various proposals under consideration. Here are a number of ways that potential changes could affect real estate agents.
Mortgage Interest Deduction
The bill released on Nov. 1 by leaders in Congress does not eliminate the Mortgage Interest Deduction, but there will likely be calls for eliminating the popular deduction at some point. In order to cut standard income tax rates, some have argued the mortgage interest deduction should be eliminated.
The NAR and others are putting pressure on Congress not to eliminate the popular deduction. They fear that its elimination will make housing a less attractive investment, which will lead to a downturn in real estate.
Property tax deduction
In areas with very high property taxes, such as New York or Los Angeles, homeowners are very grateful that they are able to deduct their local property taxes when paying federal income tax. While the current version of the tax bill maintains that deduction, there will almost certainly be pressure from some in Congress to remove that deduction.
State income tax deduction
The current proposal eliminates the deduction for state income tax. That means nothing to people in Texas or Florida, which don’t have a state income tax, but it means a lot to people living in California, which levies a state income tax rate of up to 13.3 percent. As a result, Californians and others in high tax states (e.g. New York, New Jersey, Massachusetts) may actually see their overall taxes go up, leaving them with less money to buy a home.
Increase in the standard deduction
The current proposal put forward by leaders in the House of Representatives doubles the standard deduction from $12,000 to $24,000. As real estate industry leaders have pointed out, the higher the standard deduction, the less attractive and meaningful the mortgage interest deduction becomes. As a result, homeownership might become less attractive.
Personal income tax cut
While there is a wide range of incomes among real estate agents, it’s safe to say that a majority are not in the top 1% of American income earners. As a result, most would likely be getting a tax cut if the plan being pushed by House leadership becomes law.