REALTORS® Square Up After House Passes Tax Bill

The House on Thursday passed a tax reform package that the National Association of REALTORS® calls a tax hike on many middle-class homeowners and says would lower property values for all homeowners. “It’s disappointing to see this legislation move forward, but the real work to shape this debate is just getting started,” NAR President Elizabeth Mendenhall said in a statement.

The bill, called the Tax Cuts and Jobs act, was passed by a vote of 227 to 205 along party lines. It was approved entirely by Republicans—although several members of the party joined Democrats in opposition. The bill, which would increase the federal deficit by $1.5 trillion over 10 years, cuts the top corporate tax rate from 35 percent to 20 percent and, in a move that affects only the wealthiest households, nearly doubles the threshold for the estate tax and then phases it out entirely.

To pay for these and other measures, the bill would institute these changes:

  • Eliminates or curtails most itemized deductions, except those for mortgage interest and charitable contributions. The MID would be limited to mortgages of up to $500,000—half of the current limit—and the property tax deduction would be capped at $10,000.
  • Restricts the exclusion on gains from the sale of a principal residence by requiring households to live in the house for five of the last eight years, instead of two of the last five years. The bill also reduces the benefit for higher-income households. The exemption today applies to proceeds of up to $250,000 for individuals and $500,000 for married couples filing jointly.
  • Nearly doubles the standard deduction to $12,000 for individuals and $24,000 for married couples, but that increase is largely offset by elimination of the personal and dependency exemptions—a change that could hit larger families, as well as those with older children, particularly hard.

The House passage is the first of a multistep process before tax reform legislation can be enacted into law. In the Senate, the tax-writing Finance Committee is already working on its version of tax reform, and the full Senate may vote on the bill the week after Thanksgiving. That bill follows the same structure as the House bill but makes significant changes. Among other things, it makes no direct changes to the mortgage interest deduction, but it eliminates the deduction for all state and local taxes, including property tax. However, as with the House bill, the Senate version would limit the use of both tax incentives for owning a home to only about 5 percent of tax filers. Estimates show that this could lead to a drop in home values of more than 10 percent nationwide, with an even greater drop in high-cost areas.

“Make no mistake, middle-class homeowners will see their home values fall if this proposal moves forward, while large corporations walk away with the bulk of the tax cuts,” Mendenhall said. “American homeowners shouldn’t have to pay for corporate tax cuts with their home equity. It’s a matter of basic fairness; 1.3 million REALTORS® have known since the beginning what America’s 75 million homeowners are just beginning to learn: that homeowners will be the ones paying the tab. REALTORS® will do our part to spread the word as we work with the Senate to address this impending assault on homeownership.”

—Robert Freedman, REALTOR® Magazine

4 Social Benefits of Homeownership

Improved educational performance, higher civic participation, lower crime rates, and improved health remain the biggest social benefits linked to homeownership, according to a new research paper by NAR Chief Economist Lawrence Yun and research economist Nadia Evangelou, which appears in The Journal of the Center for Real Estate Studies. Some findings from the latest research cited in the paper include:

Health. Children of homeowners tend to be happier and healthier than children of nonowners, even after factoring in income and education levels. More recently, studies have found the wealth-building effect of homeownership and the sense of control it often brings in a stable housing market can positively affect homeowners’ mental and physical health. On the other hand, some studies suggest that areas where housing distress is high tend to see greater rates of mental health and stress-related health diagnoses among residents.

Crime. Research has confirmed homeowners have a lower instance of involvement in crime than nonowners. Also, neighborhoods with stable housing options—regardless of ownership structure—are more likely to have lower crime rates. Some studies have found, however, that foreclosure levels do influence burglary and violent crime rates.

Education. Researchers have found homeowners tend to accrue more wealth and save more money—such financial practices are associated with lower rates of homeowners’ children dropping out of school.

Civic engagement. Homeownership and residential stability continues to be linked with an increased likelihood of electoral participation. Homeowners remain more likely to participate in local elections and civic groups than renters, the paper states.

“Owning a home embodies the promise of individual autonomy and is the aspiration of most American households,” the researchers note. “Homeownership allows households to accumulate wealth and social status, and is the basis for a number of positive social, economic, family, and civic outcomes.”