Ask the Accounting Community

With tax reform being one of the main platforms in the 2016 Presidential race, all eyes seem to be on President Trump and the Republicans now as they position themselves to bring about the major tax reforms they promised voters. While many different areas are set to be affected by tax reform, one that hasn’t had much attention until now is the housing market. Experts and homeowners alike are now wondering how tax reform could affect the housing market.

There’s no question about it, owning a home is a very large expense. Even with mortgage rates relatively affordable right now, BB&T mortgage rates being a good example, it’s still expensive to own a home. This is why so many homeowners make use of the various tax benefits, which help to make it more affordable.

With talk of a major tax system overhaul, homeowners are now starting to get a bit worried and are wondering if their income tax benefits will be affected and how. Less money in your pocket at the end of the year means less money for all your expenses – including your mortgage.

With 57% of Americans having less than $1,000 in their savings account and 39% having no savings at all, increased income taxes could spell disaster for their finances.

Right now, a large number of homeowners are able to take advantage of mortgage interest deductions. If Trump's new tax plan passes, these tax savings will shrink considerably and may result in nothing for some homeowners.

As it stands, a taxpayer in the 25% bracket who has $5,000 in real estate taxes and $11,000 in mortgage interest can take advantage of tax savings of about $333 per month or $4,000 per year. If Trump's new plan is approved, with the elimination of home-ownership tax subsidies, that $4,000 a year will disappear.

Unfortunately for homeowners, it looks as though renters may fare better under the tax reform. Because renters don’t have to deal with property taxes and mortgage taxes, they will typically enjoy tax relief of about $500 for the year. Meanwhile, for homeowners, income tax reform could result in a tax increase of about $800 per year if they are in the $50,000 to $200,000 tax bracket. That money will need to come from somewhere and can make owning a home seem out of reach for those living on a tight budget.

What's interesting to note is that homeowners pay between 80-90% of all personal income tax in America, so hitting this group of people could not only hurt home sales but the entire country.

So, it seems as though all eyes will be focused on the President and the Republicans as they move forward to try to piece together a tax reform plan that hopefully works for all. Homeowners will he praying for respite on Trump’s tax reform plans.