The new tax reform blueprint under development in Congress and by the current administration will affect home owners in a negative way if enacted. The National Association of Realtors asked PwC (PricewaterhouseCoopers) to conduct a study on the effects of the proposed tax plan on home ownership. PwC is a consulting firm focused on audit and assurance as well as tax and consulting services, The results are not good news for home owners. There will be less of a tax benefit to home ownership and overall home values will decline.

The new plan proposes lowering and consolidating marginal tax rates to just three rates. The top rate of 33 percent would also double the standard deduction, eliminate all itemized deductions except charitable contributions and mortgage interest. The plan would also eliminate the Alternative Minimum Tax. There would be a cap on pass-through business income at 25%. Pass through taxation applies to sole proprietorships, partnerships, and S-Corporations.

Home prices would fall 10.2% based on the studies conducted. The impact varies depending on local conditions, but overall the report finds a decrease of 8% to 12%. The after-tax cost of home ownership would increase. Comprehensive tax reform will impact the demand for owner-occupied housing because it will reduce the number of home owners who claim the mortgage interest deduction, eliminate the itemized deduction for property taxes, and decrease marginal tax rates. As housing becomes a less attractive investment, it will cause housing prices to decline immediately.

Both home owners and non-home owners with Adjusted Gross Income between $75,000 and $250,000 would likely pay higher income taxes. Homeowners in the income range between $50,000 and $200,000 would see an average tax increase of $815. Non-homeowners with income in the same range would see a reduction of $516. However, taxpayers with an Adjusted Gross Income over $200,000 would see average tax decreases of over $15,000.

Sources:

https://www.nar.realtor/articles/impact-of-tax-reform-options-on-owner-occupied-housing http://narfocus.com/billdatabase/clientfiles/172/26/2906.pdf