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Certain components of the tax reform plan, developed and issued in a framework by six Republicans from the House, Senate and Trump Administration, could harm homeownership, the real estate industry warns. Both the doubling of the standard deduction and the elimination of local and state deductions effectively challenge or erase incentives for homeowners, and inhibit, potentially, the homeownership rate.

“We have always said that tax reform—a worthy endeavor—should first do no harm to homeowners,” said Bill Brown, president of the National Association of REALTORS® (NAR), in a statement. “The tax framework released by the ‘Big Six’ [on Wednesday] missed that goal.”

The fate of the mortgage interest deduction remains uncertain. The Administration communicated an intent to “protect” homeownership in its initial proposal and again on Wednesday, but without more information, it left open the possibility for changes to the provision. Critics of the deduction maintain it helps only wealthy homeowners; NAR offered up evidence to the contrary in a recent testimony, reporting 7 million taxpayers took advantage of the deduction in 2015.

“This proposal recommends a backdoor elimination of the mortgage interest deduction for all but the top 5 percent who would still itemize their deductions,” Brown said. “When combined with the elimination of the state and local tax deduction, these efforts represent a tax increase on millions of middle-class homeowners. That tax increase flies in the face of a reform effort ostensibly aimed at lowering the tax burden for Americans. At the same time, the lost incentive to purchase a home could cause home values to fall.”

An analysis by PricewaterhouseCoopers commissioned by NAR found homeowners earning $50,000 to $200,000—thereabout middle class—would realize an average $815 more in taxes in the year after the proposed reform takes effect, while non-homeowners earning in the same range would see an average $516 less.

The analysis also found a 10 percent-plus plunge in home values, which could push some homeowners back into negative equity, undoing the recovery.

“Plummeting home values are a poor housewarming gift for recent homebuyers and a tremendous blow to older Americans who depend on their home to provide a nest egg for retirement,” said Brown. “Congress can still score a win for American families by promoting lower rates and comprehensive reform that doesn’t single out homeowners for a tax hike, while also preserving important investment incentives like 1031 like-kind exchanges. We look forward to continuing the discussion in the weeks and months ahead.”

“Proposed changes—such as the increased standard deduction and elimination of other itemized deductions—mean that many who claim the mortgage interest deduction under today’s tax laws will no longer be able to do so,” said Danielle Hale, chief economist at realtor.com®, in a statement. “Although the plan recognizes the role of the mortgage interest deduction in strengthening society via homeownership, other changes in the plan could affect its incentive value.

“The proposed tax plan increases the standard deduction and eliminates other deductions claimed in concert with the mortgage interest deduction, which would effectively eliminate the mortgage interest deduction for all but the top 5 percent of taxpayers who would still itemize their deductions,” Hale said. “The plan also eliminates most types of itemized deductions, including payments for state and local taxes, which include property taxes. When you consider the total package, many middle-class homeowners are really looking at a tax increase.”

“Now that the Republicans have provided the skeleton and offered a broad outline for tax reform, the important part of negotiation begins in order to flesh out the vast details,” said Daniel D. Mennenoh, president of the American Land Title Association (ALTA), in a statement. “In its negotiations, Congress should focus on the potential for tax reform to incentivize faster growth and investment. That goal will not happen unless tax policy continues to promote investment in real estate, which accounts for more than 15 percent of the nation’s gross domestic product.”

“The tax reform plan proposed by Republican leaders in Congress and the White House overlooks one of the best and most immediate ways to spur economic growth and help everyday Americans who have been left behind: reprioritizing and rebalancing federal housing policy,” said Diane Yentel, CEO and president of the National Low Income Housing Coalition, in a statement. “The Republican tax plan calls for raising the standard tax deduction, which would lead to fewer households claiming the mortgage interest deduction (MID). The MID is a $70 billion annual tax expenditure that primarily benefits higher income households—a significant amount of the benefit of the MID goes to the top 1 percent of earners in the country. Doubling the standard deduction with no further changes to the MID makes the MID even more regressive than it is today. Only some of the highest income Americans with the biggest mortgages would benefit.”

“On an issue of such significance, we recognize difficult trade-offs must be made,” said Granger MacDonald, chairman of the National Association of Home Builders (NAHB), in a statement. “Although the mortgage interest deduction remains untouched, its effectiveness could be diminished as more families elect to take a higher standard deduction. As the process advances, NAHB looks forward to working with policymakers to mitigate any detrimental effects that this development could have on the housing market. In addition, we will also seek to ensure that tax relief efforts put more money into the pockets of hard-working families and that affordable homeownership and rental housing opportunities remain an accessible goal.”

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