- Current tax reform proposals would eliminate most of the MID's efficacy for homeowners.
- NAR's position is to preserve homeownership opportunities, no matter the party in power. Tax reform can occur while retaining homeownership incentives -- the discussion has just begun.
The National Association of Realtors’ (NAR) opposition to portions of President Trump’s proposed tax reforms has caused some unrest in the real estate industry.
NAR has always stood firmly in support of the mortgage interest deduction (MID), and — importantly — the ability of homeowners to access it. Our members have set this as a mandate for many years.
The President’s proposed tax reforms would lower tax rates overall, increase standard deductions, and keep the mortgage interest deduction in place. In practice, it’s likely that 90 percent of homeowners who currently use the mortgage interest deduction would lose that ability.
Lower tax rates for all, higher standard deductions, more money for Americans to spend — it sounds difficult to argue with on the surface. Prioritizing incentives for spending, though, has always been complex.
Incentivizing homeownership good for the country
If we look at America’s tax code, it has rarely been truly laissez faire. We write policy that creates benefits through a bias toward our priorities.
We’re biased toward good decisions, so we give deductions and credits for health care spending, charitable contributions, education, business expenses, retirement account investment and more. Deductions and sin taxes sit at the opposite ends of our spectrum of incentives. Strategic spending and investment reap significant social benefits, so we’ve structured our tax code to reward them.
It’s no coincidence that we’ve historically incentivized real estate investment.
The positive outcomes of homeownership have been studied in communities with similar income levels and housing costs. Those communities with higher homeownership rates have been shown, undisputedly and consistently, to have superior educational achievement, higher civic participation, better infrastructure maintenance and lower crime rates.
Our leaders, political and economic, understand that incentivizing homeownership is good for our country. Supporting those homeowners who’ve purchased homes under the current incentives, and those who may buy in the future, is the task at hand.
The possibilities of reform
So as we view the current proposal for tax reform, the knee-jerk reaction would be to see it as an all-or-nothing situation. We either keep taxpayers’ interest rates high and standard deductions low as we retain the MID, or we lower everyone’s rates, raise their deductions, and reduce their housing incentives.
It doesn’t have to be this simple.
The tax code is complex, to the chagrin of taxpayers, but often for pragmatic reasons. Standard deductions, itemized deductions, tax credits, etc. have been built in to capture a complex set of income streams that American individuals and businesses earn. Our world isn’t simple. We can strive to simplify our tax code as much as possible, but the necessity for some depth is clear.
If we were to even consider employing tax reform that removes the efficacy of the MID, we would also need guarantees of an alternative with an equal incentive to homeowners. Tax reform can exist simultaneously with homeownership incentives. There are many possibilities.
Consider a tax credit on mortgage interest. Take the same loan limits and caps that are currently in place, and create a credit that makes mortgage interest a direct tax reduction for all Americans.
Homeowners could calculate their qualified mortgage interest paid, multiply it by a predefined rate (e.g., 20 percent), and apply that result as a direct credit to taxes due.
It’s actually a simpler method than the current one, and it ensures that every American has an opportunity to benefit from it.
That’s just one example of the many possibilities for maintaining enticements for real estate investment within the current proposal’s framework. Of course, there’s no guarantee that legislation looking like this proposal will ever come to a vote. The discussion is just beginning.
For our politically active Realtors, your dedication is admirable.
This negotiation process for NAR isn’t about #Resist or #MAGA, though. It’s about preserving real estate incentives, no matter the party in the oval office or the halls of Congress. NAR will continue to be at the table, reminding all decision makers that an incentive to buy and own a home is an investment in our country’s best interests.
Join our discussion with your personal views on tax reform intact, and a resolute position that homeownership incentives must be maintained in any scenario.
No matter the party affiliation of the decision makers, we’ll be there to ensure that incentives and opportunities for homeownership continue to be a priority for America.