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Loss Of Mortgage-Interest Deduction Could Hurt U.S. Homeownership

The mortgage-interest deduction—the bedrock on which the nation’s housing policy was built for the past 75 years—may be on shaky ground as the Trump Administration crafts its new federal tax plan.

What is even more surprising, analysts say Capitol Hill real estate lobbyists are divided and fighting among themselves on the future of the coveted mortgage-interest deduction (MID) that potentially benefits 74 million homeowners and creates $70 billion in annual federal income tax breaks.

Insiders report that the National Association of Home Builders (NAHB) changed its stance on the importance of the mortgage-interest tax deduction, while the National Association of Realtors(NAR) is lobbying hard for the survival of MID.

“This is the first time in NAHB’s 75-year history that we have been open to the idea of broader options regarding housing tax incentives,” said Granger MacDonald, NAHB chairman and a Texas builder and developer. “Now is the time to reform tax policy and housing will not be left behind in this process.”

Earlier, the NAHB stressed that the mortgage-interest deduction has been a cornerstone of American housing policy since the inception of the tax code.

But after President Donald Trump announced his new tax plan, which would double the standard deduction and eliminate state and local tax deductions, such as property taxes, NAR continued to lobby for MID support, while the NAHB didn’t.

Home builders said they voted to revise their policy regarding the nation’s tax code in light of recent discussions on tax reform between congressional leadership and the Trump Administration.

“Today’s vote gives NAHB greater flexibility as the tax debate unfolds and stakeholders seek consensus to shape a tax code that best serves the nation’s consumers and small businesses,” the NAHB said.

“Starting back with the release of the Republican [tax] blueprint about a year and a half ago, it’s been clear to us that tax policy is changing,” said Jim Tobin, NAHB chief lobbyist and head of government affairs.

While NAHB has concerns with the doubling of the standard deduction, Tobin explained, “For us, it’s an opportunity for our industry to remain flexible in its ability to respond to potential changes down the road.”

As the Trump Administration continues to work through tax reform, NAHB said it is promoting the following tax policies:

  • A homeownership tax incentive.

  • The low-income housing tax credit, along with additional resources to meet the affordability crisis.

  • Tax incentives for remodeling, including energy-efficiency tax credits.

  • The exclusion of capital gains on the sale of a principal residence.

  • Business interest deductions for small businesses.

Tobin noted that although the NAHB hasn’t seen any concrete proposals, the administration has clearly stated that they want homeownership to be a priority going forward.

As a guardian of housing tax incentives, NAHB said it will keep defining that incentive and ensure to homeowners that housing policy is still supported. “Right now, the MID is a middle-class tax break that helped people buy and afford the home they already purchased,” said Tobin.

Experts say both the doubling of the standard deduction and the eliminating local and state real estate tax deductions effectively would challenge or erase incentives for homeowners, and potentially inhibit the national homeownership rate which has slipped to about 63% from nearly 70% before the Great Recession.

“We have always said that tax reform—a worthy endeavor—should first do no harm to homeowners,” said Bill Brown, president of NAR, who noted that the current Trump tax-reform proposal misses that goal.

“This proposal recommends a backdoor elimination of the mortgage interest deduction for all but the top 5% [of homeowners] who would still itemize their deductions,” Brown said.

“When combined with the elimination of the state and local tax deduction, these efforts represent a tax increase on millions of middle-class homeowners,” Brown said. “That tax increase flies in the face of a reform effort ostensibly aimed at lowering the tax burden for Americans. At the same time, the lost incentive to purchase a home could cause home values to fall.”

An analysis by PricewaterhouseCoopers commissioned by NAR found homeowners earning $50,000 to $200,000—thereabout middle class—would realize an average $815 more in taxes in the year after the proposed reform takes effect, while non-homeowners earning in the same range would see an average $516 less.

The analysis also found a 10%-plus plunge in home values, which could push some homeowners back into negative equity, undoing the recovery.

“Plummeting home values are a poor housewarming gift for recent home buyers and a tremendous blow to older Americans who depend on their home to provide a nest egg for retirement,” said Brown.

“Congress can still score a win for American families by promoting lower rates and comprehensive reform that doesn’t single out homeowners for a tax hike, while also preserving important investment incentives such as 1031 like-kind tax-deferred real estate exchanges,” Brown said.

“Proposed changes—such as the increased standard deduction and elimination of other itemized deductions—mean that many who claim the mortgage-interest deduction under today’s tax laws will no longer be able to do so,” said Danielle Hale, chief economist at®.

“Although the plan recognizes the role of the mortgage-interest deduction in strengthening society via homeownership, other changes in the plan could affect its incentive value, Hale said.

“The proposed tax plan also eliminates most types of itemized deductions, including payments for state and local taxes, which include property taxes. When you consider the total package, many middle-class homeowners are really looking at a tax increase,” Hale said.

Daniel D. Mennenoh, president of the American Land Title Association (ALTA), said:

“Congress should focus on the potential for tax reform to incentivize faster growth and investment. That goal will not happen unless tax policy continues to promote investment in real estate, which accounts for more than 15 percent of the nation’s gross domestic product.”

For more housing news, visit Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit

“The book is Escaping Condo Jail by Sara Benson and Don DeBat. I would say that anybody thinking about buying a condo, or even anybody serving on a condo board, or anybody who has any connection to a condo, this is must reading—all 600 and something pages. Thanks a lot for a great book!”


Steve Sanders, “Your Money Matters” WGN TV, December 22, 2014

By Don DeBat

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