Why Realtors hate Donald Trump’s proposal to double the standard deduction

Ben Carson and Donald Trump at Mar-a-Lago in March. Photo by Meghan McCarthy/The Palm Beach Daily News

President Donald Trump on Wednesday revealed more details about his proposed tax cuts, and one provision in particular — the near-doubling of the standard deduction for married couples from $12,700 to $24,000 — has the nation’s largest lobbying group nearly apoplectic.

The National Association of Realtors had yet to respond to Trump’s proposal announced Wednesday afternoon, but a letter last month from NAR President William Brown to Treasury Secretary Steven Mnuchin dropped the verbs “devastating,” “debilitating” and “cripple.” Wrote Brown:

“The [House Republican] Blueprint calls for the standard deduction to be almost doubled from its current levels. The plan also includes the repeal of the deduction for state and local taxes, as well as the elimination of most other itemized deductions. Either of these monumental changes alone would marginalize the value of the current-law tax incentives for owning a home. Unfortunately, the combination of these two revisions would cripple the incentive effect of the federal tax law for all but the most affluent.

“We anticipate two potentially devastating problems in the aftermath of these modifications. First, the impact on the first-time homebuyer could be enormous. For many, the current-law tax incentives make the crucial difference in being able to afford to enter the ranks of homeowners. At a time when the rate of first-time home-buying is well below the average of the past few decades, this could be particularly debilitating for the housing industry and the entire economy.”

“Second, the decimation of the mortgage interest and real property tax deductions would very likely cause a significant plunge in the value of all houses. At a time when the housing sector has not fully recovered from its thrashing during the Great Recession, this drop, even if temporary, could be calamitous. Millions of homeowners could again wake up to learn that the value of their largest financial asset has dived below the amount of debt that is owed on it.”

In an era of rock-bottom interest rates, relatively few homeowners pay enough mortgage interest to gain a significant benefit from the mortgage interest deduction.

Say you bought a $400,000 house in January and borrowed $320,000 with a 30-year mortgage at 4 percent. In 2017, you’ll pay interest totaling $11,648, a sum less than the standard deduction. If the deduction were to increase to $24,000, only the most affluent borrowers would get a tax break from carrying a mortgage.

UPDATE: NAR released a statement panning the Trump proposal’s effect on the mortgage interest deduction, as did the National Association of Home Builders.

“NAHB commends President Trump for tackling tax reform and keeping the mortgage interest deduction as one of two individual deductions, ” Chairman Granger MacDonald said in a statement. “However, doubling the standard deduction could severely marginalize the mortgage interest deduction, which would reduce housing demand and lead to lower home values.”

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