Tax Reform and the Mortgage Interest Deduction

Recently I’ve read a few articles on the potential impact of the President’s tax reform plan on housing.  Specifically, the increase in the standard deduction and how that affects the benefits of the mortgage interest deduction.  Currently the standard deduction for tax year 2017 for joint filers is $12,700.  If your mortgage interest payments plus other deductions exceed this amount, then you probably itemize your deductions.  As an example, if you buy a $400,000 home and put 10% down with a 30 year fixed mortgage at 4.0%, in the first year you’ll pay roughly $14,200 in interest, so you’d itemize.  

Trump’s plan would potentially double the standard deduction to $24,000, so joint filers would get a $24,000 deduction regardless of whether they actually spend $24,000.  The tax benefit of the mortgage interest deduction is therefore decreased or eliminated.  While opinions vary, the concern is that by removing the tax advantage of owning (and borrowing) versus renting, housing demand will decline and hence home prices as well.