“I think the loss of the interest deduction would be disastrous for our state and area. The loss of the mortgage interest deduction would likely act as a disincentive to potential home buyers by eliminating one of the prime benefits for home ownership…It feels like we are being punished because we live in a high cost area with homes that are going to be disproportionately affected by the loss of the interest deduction” – David Kerr, Senior Sales Associate
Republicans announced their new tax plan, Tax Cuts and Jobs Act, Thursday, and its implications on the housing market are much larger than expected. The bill, H.R. 1, cuts the mortgage interest deduction in half. It’s previous limit was $1 million.
Many experts feared the increase in the standard deduction, which the new plan increased from $12,000 to $24,000 per household, saying it could make the mortgage interest tax deduction less appealing, however, lowering the tax deduction has brought even more outcry from the housing industry.
The National Association of Realtors, who has been one of the most vocal defenders of the mortgage interest deduction, released this statement on the new plan:
“We are currently reviewing the details of the tax proposal released today, but at first glance it appears to confirm many of our biggest concerns about the Unified Framework,” NAR President William Brown said. “Eliminating or nullifying the tax incentives for homeownership puts home values and middle class homeowners at risk, and from a cursory examination this legislation appears to do just that. We will have additional details upon a more thorough reading of the bill.”
So should buyers look to secure their mortgage today, before the tax plan takes effect? Actually, it’s already too late.
In the case of any pre-November 2, 2017, indebtedness, this paragraph shall apply as in effect immediately before the enactment of the Tax Cuts and Jobs Act, the report states.
However, there is an exception for those who are already entered into a contract. Home buyers purchasing their primary residence who were in a binding contract before November 2 and are scheduled to close before January 1, 2018, are exempt from the new rule, as long as the contract closes before April 1, 2018.
And reducing the mortgage interest deduction isn’t the only change the housing market will see due to the new tax plan.