Trump Tax Plan
We still don’t know much about President Trump’s tax plan. The administration has been light on details, and no matter what plan it ultimately decides to put forward, the final bill will likely go through considerable changes as it winds its way through the House and the Senate.
But Treasury Secretary Steve Mnuchin has said that the president plans to eliminate all of the currently existing loopholes and carve outs that have made their way into the tax codes over the decades, with two important exceptions: the mortgage interest and charitable giving deductions.
The former is obviously of particular importance for the real estate sector – a factor the industry has been watching carefully since December, when Mnuchin suggested that the mortgage deduction may either be capped or eliminated entirely.
So far, Mnuchin has only revealed that President Trump plans to maintain the deduction in some capacity, leaving open the possibility that the administration may decide to put a cap on the upper limit of how much homeowners can deduct from their taxes. The specifics as to how this would ultimately affect the industry will depend on the details. If the deduction is left in place in its entirety, the residential real estate sector will continue to enjoy one of its strongest selling points.
A cap on the deduction would certainly have a negative impact on prices and deal volume, although its effect would be less evenly distributed than an outright elimination. Cities with higher housing prices would be more likely to be affected, as would the higher end of the market in general. Exactly where that dividing line falls is dependent upon where such a theoretical cap would fall.
But even eliminating the deduction entirely would not necessarily represent a negative development for the real estate sector in general. While single-family properties would be impacted by such a policy, multi-family rental properties would likely benefit, as at least some prospective homeowners decide to continue renting rather than buying their own homes. That could increase demand for apartment buildings, leading to increased returns for players in that sector.