Rich homeowners in blue states are among the biggest losers in the GOP tax plan

  • Republicans’ tax bill is set to disproportionately affect homeowners in affluent parts of the US.
  • Wealthier households are more likely to take advantage of key tax breaks that could be downsized, including the mortgage interest deduction and the state and local tax, or SALT, deduction.
  • Though this could weaken buying activity and prices, the high end of the housing market is also the smallest by share.
  • Most states that would be most affected also happen to be blue states. They include New York, California, Connecticut, and Hawaii.

The GOP’s tax plan is likely to advantage wealthy Americans in numerous ways, including with estate-tax and private-tuition benefits.

But where the housing market is concerned, proposed changes — particularly in the House version of the bill — are set to disproportionately hurt wealthier homeowners.

Many of the states with the most expensive housing markets, including California, New York, and Hawaii, also happen to lean Democratic. And while it might be a stretch to say those tax changes target blue states, they almost certainly would hurt high-income areas more.

Two policy proposals in the House and Senate versions of the bill are worth noting. First is the mortgage interest deduction, which helps homeowners lower their taxable income.

The Senate’s bill leaves the threshold of the first $1 million of a mortgage unchanged. But it also hikes the standard deduction for all taxpayers, meaning it may no longer be better for some households to itemize the mortgage interest deduction since it would be lower than the standard deduction.

The House’s plan is more significant. It halves the mortgage interest deduction to the first $500,000 of a loan.

Richer states lose more

Housing interest groups fear that scaling back tax incentives would slump home prices in the most expensive markets and discourage existing homeowners from moving.

The exact impact on home prices is anyone’s guess. At one end, the National Association of Homebuilders has warned about a housing recession.

But it may not be that bad. Just 9.4% of owner-occupied homes have a mortgage of more than $500,000, Credit Suisse analysts estimated. Additionally, the median price for a single-family home was $245,500 on a trailing 12-month basis through October.

This implies that most of today’s homeowners don’t qualify for this tax benefit. At the same time, the proposals’ effects on the wealthy are undeniable.

Would they hurt home sales?

The argument for lower prices and sales is premised on the idea that tax benefits encourage homebuying. The House’s mortgage interest deduction cap applies only to new purchases, so existing homeowners may become reluctant to move.

“While more disposable income for buyers is positive for housing, the loss of tax benefits for owners could lead to fewer sales and impact prices negatively over time with the largest impact on markets with higher prices and incomes,” said Danielle Hale, the chief economist at

But it’s also worth considering why people buy homes.

“A very small fraction of the home buying public actually makes the purchase price decision based on their tax deduction,” Tom Porcelli and Jacob Oubina, economists at RBC Capital Markets, said in a note.

Even in a perfect world in which buyers are rational, they added, the price changes would be within the boundaries of normal price negotiation that happens in any homebuying transaction. “Don’t forget that parties in the transaction are already willing to concede about 5% to real estate brokers,” they said.

Also, price drops at the highest end of the market would have a minimal macro effect because it’s also the smallest end of the market by share.

The bottom line is that America’s most expensive households will be the places to watch for how the GOP’s tax plan affects the housing market.


The second proposal that could hit wealthier homeowners is a repeal of the state and local tax deduction, which allows Americans to lower the share of their taxable federal income. Removing the option to make this deduction would immediately amount to a tax increase for many wealthier households.

High-income households are more likely than other income groups to benefit from SALT and claim the deduction, the center’s research found. Among households earning $200,000 to $300,000 a year, 93% claimed the SALT deduction, compared with 39% of households earning $50,000 to $75,000.

State income, local income, and real-estate taxes make up the bulk of the SALT deduction, according to the Tax Policy Center.

That change would disadvantage states like New York, where state and local taxes are high and taxpayers itemize these deductions instead of taking the standard deduction.

And so instead of the promised tax cuts, many could be paying more to the federal government.

SEE ALSO: The GOP is set to eliminate one of the biggest benefits of owning a home

DON’T MISS: 7 ways rich people win big if tax reform passes

Join the conversation about this story »

NOW WATCH: Here’s what the Senate Republicans’ tax plan means if you’re making $25,000, $75,000, or $175,000 a year

Author: admin

Добавить комментарий

Этот сайт использует Akismet для борьбы со спамом. Узнайте как обрабатываются ваши данные комментариев.