“New Year, New Me.” This phrase is often uttered in the early parts of a new year as individuals prepare to make changes in their health, career, relationships or a variety of other personal traits. This phrase could ring true for 2017 as America prepares to inaugurate our 45th President and witnesses many political and policy shifts. One proposition that may enact some major adjustments is President-Elect Trump’s new tax plan. If you’d like to learn more about his tax proposals, check out our article highlighting major changes for individuals and businesses here. However, Trump’s plans have the potential to cause more shifts than just tax cuts; researchers believe it could have an impact on the housing market, specifically on mortgage interest deductions.
The President-Elect’s current plans include a rise in standard deductions for both individual filers and those filing jointly. Under current laws, many filers itemize their deductions rather than taking the standard deduction of $6,300 in order to receive additional tax breaks. But now, single filers could see a rise in exemption from $6,300 to $15,000 and joint filers could see a rise double that, at $30,000. Therefore, previously, those paying $10,000 in mortgage interest would have benefited from itemizing, but under Trump’s new proposals, in many cases, taxpayers would benefit more by taking the new standard deduction rather than itemizing. Although these propositions could simplify the filing process, they could also discourage individuals from buying. If homeowners no longer have an incentive to itemize and deduct their mortgage interest, then many may feel that renting is just as advantageous as buying.
Many economists would suggest that mortgage interest deduction does not actually motivate individuals to buy, but just encourages them to spend more or buy larger homes. However, limiting tax preferences for homeownership could cause a drop in the value and price of homes, a potential benefit to buyers, though a definite negative for sellers. One positive the market may have to look forward to is lower tax rates for many tax brackets, which has the potential to encourage individuals to spend more money on a variety of things, including housing. While the President-Elect’s tax changes could cause shifts to housing and homeownership, his proposals are ever changing and still being ironed out in many places. Current homeowners (who aren’t looking to sell in the next year) may have nothing to worry about, but future homeowners might consider what unfolds in the coming months before purchasing a home in 2017.
