The housing industry is warning that federal tax reform legislation will mean big home value losses across the country, but others say the tax cuts and growing economy will make up for it.
The National Association of Realtors is pushing Congress to reconsider some of the changes in its tax reform packages that recently passed. They say removing the mortgage interest deduction as well as other subsidies for homeowners will result in the average house losing $22,000 to $34,000 in home value.
The proposed GOP tax overhaul would remove the mortgage interest deductions for any home worth more than $500,000, as well as cap the property tax deduction at $10,000, meaning residents of states with high property taxes like Illinois would pay more to the federal government on April 15 because many wouldn't be able to deduct all of their local tax bill.
Of the 6.1 million Illinois tax returns filed with the IRS in 2015, 1.4 million deducted mortgage interest and 1.7 million deducted property taxes. The NAR estimates that the average Illinois homeowner deducts $7,700 in mortgage interest and $6,750 in property taxes, well under the proposed $10,000 cap.
U.S. Rep. Mike Bost, R-Belleville, said last week that 78 percent of his southern Illinois district uses the standard deduction, thus having no need for itemized exemptions.
The Joint Committee on Taxation estimates that $39 billion in property taxes will be written off of federal returns in 2017.
Chris Edwards, editor of downsizinggovernment.org, said the extra money in Illinoisans’ wallets from a higher standard deduction and economic growth will give that lost home value back over time.
“Middle and upper-middle income households are going to get tax cuts out of this bill,” he said. “That’s the most important aspect.”
Edward Pinto, co-director of the American Enterprise Institute’s International Center on Housing Risk, said removing the subsidies for expensive homes will put more affordable homes on the market and even more money in Illinoisans’ wallets since they're more inclined to buy lower-priced homes.
But Pinto said the bigger pinch will be felt on the state and local governments like Illinois that have been reliant on these tax carve-outs to subsidize their high cost of government.
“Illinois has been able to benefit from a large number of federal tax deductions, three of which are being constricted,” he said. “This should be a wake-up call for Illinois.”
Both Pinto and Edwards point out that the percentage of homeownership is nearly the same as it was decades ago, leading one to believe that the tax deductions haven’t had the effect that realtors say.