Both the tax proposal from Speaker Paul Ryan (R-WI) and the plan from President Trump keep the mortgage interest deduction – the MID – intact, so isn’t that good for real estate? If the MID remains in place then isn’t everything wonderful on the real estate front?

In a word, no.

The issue with real estate and tax reform is very simple: what homeowners see as a benefit the government sees as an “expenditure.”

Your deduction versus Uncle Sam’s expenditure:
According to the Treasury Department, “tax expenditures are defined by law as ‘revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability.’” In the period between FY2016 and FY 2025 major federal “expenditures” – what you and I call tax deductions – include such goodies as tax-free employer-funded medical plans ($2.74 trillion), capital gains ($1.06 trillion), mortgage interest ($948.5 billion), and property taxes ($486.9 billion).

“Right now real estate write-offs for mortgage interest and property taxes top $100 billion a year, while the government budget runs on an annual deficit, and adds to the country’s $19 trillion debt,” said Rick Sharga, executive vice president at Ten-X.com, the online real estate marketplace. “As you might guess, that $100 billion looks mighty attractive to the folks on Capitol Hill.”

The Trump and Ryan tax reform proposals treat residential real estate write-offs in two ways: The property tax deduction vanishes while the MID is made toxic, a deduction you most likely won’t want to touch.

Property taxes:
Under the tax reform proposals now on Capitol Hill, the property tax write-off would be completely gone. The 35-page Ryan plan states “to simplify tax filings further for middle-income families, this Blueprint reflects the elimination of all itemized deductions except the mortgage interest deduction and the charitable contribution deduction. These two provisions help accomplish two important goals that strengthen civil society: homeownership and charitable giving.”

Not to be outdone, the Trump proposal says, “we are going to eliminate most of the tax breaks that mainly benefit high-income individuals. Home ownership, charitable giving, and retirement savings will be protected – but other tax benefits will be eliminated.” According to CNBC, the one-page Trump plan “would eliminate tax deductions, with only a few exceptions, including the mortgage interest and charitable contribution deductions.”

What neither plan does is save property tax write-offs, a big expense, especially in high-cost states such as New York, New Jersey, and California. This is a problem for taxpayers who want the deduction and it’s also a problem because without federal write-offs there’s nothing to offset state and local tax increases. In the past politicians might have been able to say, “yes, we’re raising property taxes but that also means a bigger deduction for homeowners” while under the new plans – if one passes – local officials will only be able to glumly say “we’re raising property taxes and simply put you’ll have less money in your pocket.”

Ruth Schoenherr is a mortgage broker who will help you find home loans in the Clearwater, Palm Harbor, Largo, Safety Harbor, St Petersburg and Tampa Bay area. For more information, go to her web site at www.ClearwaterMortgageBroker.net.