While the tax bill currently working its way through the Senate and the House is still in flux, I thought it was worth putting an article together going over the proposed changes that will directly impact the housing market.

Mortgage Interest

Currently you can deduct qualifying mortgage interest of up to $1,000,000 plus an additional $100,000 for equity dept. (refinancing that is not related to improving your home, e.g. raising money to buy a car). This cap applies to your primary residence plus one other residence.

House Bill

Current mortgages would be grandfathered (therefore no change), but new mortgages would be capped at $500,000 and this would only apply to your primary residence.

Senate Bill

Current $1,000,000 limit would remain but the $100,000 equity dept. Amount would be eliminated.

Property Tax Deduction

Currently you can deduct any property taxes paid.

House Bill

Local property tax deduction would remain but there is a maximum amount of $10,000 for combined state and property taxes.

Senate Bill

Property tax deduction would be eliminated.

Capital Gains Rules

Current rule says that if you have owned and lived in the property for 2 out of the last 5 years you can exclude $250,000 (or $500,000 if married) in capital gains.

House Bill

Change to 5 out of the last 8 years.

Senate Bill

Change to 5 out of the last 8 years.

Conclusion

There have been many predictions based on these changes, everything from NAR’s the sky is falling to Robert Shiller saying that it will have no impact (although he does think that the property tax elimination will impact the market). All in all, it is unknown what impact these changes will have, but one thing is sure none of them provide more incentive to own a home and the more expensive areas of the country like California will probably take a bigger hit than others.