For more than a century, tax laws have allowed homeowners to deduct the interest paid on their home from their income taxes. President-elect Donald Trump is looking to change the way this law works.
“We’ll cap the mortgage interest, but we’ll allow some deductibility,” Steve Mnuchin, the newly nominated Secretary of Treasury said to CNBC.
The change will not affect much of the population. The deduction is already capped at $1 million if married, filing jointly, and $500,000 if you file separately. This means that due to some owning their home outright and many not itemizing on their taxes, only about 40 million of the 173 million people in the U.S. (22.5% population) currently benefit from the deduction.
This is a solid selling point for most realtors, and with the deduction cap lowered, they worry this may become a much harder sell.
“We’re living in a time of rough credit and low inventory, with homeownership rates hovering around a 50-year low. Doing anything that would make it harder for buyers to enter the market is a fundamental step in the wrong direction,” said William E. Brown, President of the National Association of Realtors.
Mnuchin suggests the cap be set at $100,000, which allows most to continue the use of the deduction. The average home price in the U.S. is $200,000. At $500,000, the interest of the home is $23,000. When added to other standard deductions, most people will not reach the $100,000 cap. The deduction cap, along with other housing issues are at the top of the new administration’s list of renovations.