Fewer Itemizers
While Trump may not technically change the deduction, he would probably eliminate its usefulness for all but the most wealthy homeowners, said Joseph Rosenberg, a senior research associate for the nonpartisan Tax Policy Center.
The share of households that itemize would plunge to about 5 percent from about 30 percent now, according to a National Association of Realtors estimate. About 8 million families would itemize under Trump’s plan, a reduction of about 25 million.
The administration is “selling it as a sort of simplification,” said Rosenberg, noting that Americans who switch to the standard write-off wouldn’t pay more in taxes. “In some respects, they are embracing the fact that there would be fewer people who itemize and take these deductions.”
Taxpayers, however, would lose an incentive to take on mortgage debt, and buyers in expensive markets who are stretching to afford fast-rising home prices may start to re-evaluate how much they’re willing to spend. In Denver and Portland, Oregon, for example, potential buyers for about half the listings would no longer be able to justify itemizing because of mortgage interest alone, according to a Trulia analysis. The share is about double the national average of 22 percent in areas including Dallas, Seattle, Boston, Washington and Sacramento, California.
The impact of the switch would be greatest for middle-income renters who are thinking about making the jump to homeownership, according to Ralph McLaughlin, Trulia’s chief economist.
Price Declines
Prices may fall 10 percent on average nationwide, taking into account the lack of deduction for state and local property taxes, according to a preliminary estimate prepared by a consultant for the National Association of Realtors. Zandi of Moody’s said the proposed deduction changes would reduce prices by about 4 percent nationally, including the property-tax impact, with bigger decreases in pricier parts of the country.
If the government’s tax policy no longer favors homeownership, some renters may decide buying isn’t worth the hassle or expense. While buying a house for $517,000 is now cheaper than renting in all 100 markets measured by Trulia, that calculation would change under the Trump plan in 12 areas, including New York City; Portland, Oregon; and Madison, Wisconsin.
Reducing incentives to buy could benefit large publicly traded landlords, including Equity Residential and Avalon Bay Communities Inc., and single-family rental companies such as Blackstone Group LP’s Invitation Homes Inc. and Colony Starwood Homes, whose co-chairman, Tom Barrack, was a key Trump supporter.