Own a home or renting? 5 questions about what Trump’s tax plan could mean to you

May 21--It's little more than bullet points on a single page.

But the effect of President Donald Trump's plan to overhaul the U.S. tax system is being hotly debated in real estate circles.

The National Association of Realtors, citing Trump's proposals to double the standard deduction while scrapping write-offs for expenses like state and local property taxes, warns that such a plan would hurt a wide swath of homeowners and the residential real estate market.

"It's going to continue to make California a renter's state vs. a homeowner's state," said Tammy Newland-Shishido, Orange County Association of Realtors president-elect, who was in Washington D.C., with the national advocacy group last week.

Not every real estate expert foresees dire consequences. Some say if the plan prevails in Congress, it could spread the wealth.

"It's beneficial to the everyday person," said Fadel Lawandy, director of the Hoag Center for Real Estate and Finance at Chapman University in Orange. "The middle class is going to benefit, whether they own a home or not. It will help renters significantly."

Trump's simple, one-page outline was expected to forge major changes in the tax code this year, but some Wall Street analysts believe the repeated crises faced by the White House could push tax reform into 2018.

Regardless of when it happens, here's how arguments over what it could mean for housing are unfolding:

What's been proposed?

Trump's plan raises the standard deduction to $24,000 from $12,600 for a married couple filing jointly. Only deductions for only mortgages and charitable donations would be allowed. Deductions for state and local taxes, including property taxes, and other write-offs would be eliminated.

The mortgage interest deduction -- which allows homeowners to deduct interest paid on home loans up to $1.1 million -- would still be an option. But the Realtors group and a national home builders' organization say it would carry far less value; most people would have to file for the standard deduction and many would pay higher taxes.

Why the alarm?

Real estate agents and builders say they'd be losing what they consider an important incentive for homebuyers -- the prospect of receiving a mortgage deduction on their taxes. And, they say, getting rid of deductions for state and local taxes would decrease home values.

"Current homeowners could very well see their home's value plummet and their equity evaporate if tax reform nullifies or eliminates the tax incentives they depend upon, while prospective homebuyers will see that dream pushed further out of reach," said William E. Brown, NAR's president. "While we appreciate the administration's stated commitment to protecting homeownership, this plan does anything but."

Brown, from Alamo, added, "Common sense says owning a home isn't the same as renting one, and American's tax code shouldn't treat those activities the same either."

The National Association of Home Builders also sounded a warning.

"Doubling the standard deduction could severely marginalize the mortgage interest deduction, which would reduce housing demand and lead to lower home values," said Granger MacDonald, the association's chairman.

How popular is the mortgage interest deduction?

The write-off, enacted in 1913, has been a third rail in U.S. politics. No one ever touches it.

Proposals to eliminate it, turn it into a tax credit or limit it for high-income taxpayers have come and gone.

In 2014, some 32 million homeowners claimed it, saving about $2,173 each, the National Association of Realtors says.

The real estate industry typically makes a strong push to keep the deduction, saying that to do otherwise would price-out would-be buyers and threaten the housing market.

But some economists and academics say the write-off favors the upper-middle class and the wealthy.

Zillow economist Svenja Gudell said she doesn't believe that a desire to claim the mortgage interest deduction necessarily drives home purchases.

Dennis C. Smith, a Huntington Beach mortgage broker, agrees.

"Having interviewed potential homeowners for 30 years, I can state that very few, about 10-15 percent or less, of those I have spoken to over the years, make their decision to buy a home because of the tax deduction they will receive," Smith, co-owner of Stratis Financial, recently wrote in his blog.

How could the tax plan affect pricey housing markets?

Getting rid of property tax deductions would hit expensive markets harder than other places, Realtors, economists and academics say.

"For households in higher-tax states, the benefit of itemizing is higher," states an article entitled "Tax plan could hurt homeowners" published on the national Realtor group's' website. "And for second-home owners, the net tax benefit of itemizing can be substantial."

"There's a segment of borrowers who would be adversely affected," said Paul Habibi, a faculty member at the Ziman Center for Real Estate at UCLA. "It just depends on what side of the income spectrum you're on."

In coastal markets, including Los Angeles and Orange County, San Francisco and New York City, he said, "You're going to have a greater percentage of those potential homeowners adversely affected because they have median prices high enough to kick them into benefiting from the (itemized) deductions."

Under the plan, a married couple would need a home-loan balance of about $608,000 to use the mortgage interest deduction, up from about $322,000 now, Bloomberg reported.

Ralph McLaughlin, an economist at home search website Trulia, does not think the plan, if implemented, would create a major disruption in the overall housing market.

But, he said, "The proposed tax reform will push the benefits of the mortgage interest deduction further out of reach of the middle class. Under the current tax code, the top 43 percent of household earners can itemize their mortgage interest if they purchased a home. Under the proposed tax plan, that number would shrink to just the top 17 percent."

In Orange County, only 26 percent of households could afford to buy a home with a mortgage high enough to qualify for the mortgage interest tax deduction under the proposed tax plan -- down from 55 percent of households that currently qualify, by Trulia's math.

What's next?

Despite arguments that Trump's proposals could help renters and those struggling to become homeowners, Senate Democrats say Trump's overall plan is aimed at the rich, including the president.

And the nonpartisan Tax Policy Center has said nearly 8 million families -- including a majority of single-parent households -- would be worse off.

Much still is unknown. The plan has three tax brackets of 10, 25 and 35 percent. But it's not yet clear what the income levels would be.

And, of course, what Congress would do remains to be seen.

But the plan's advocates, as well as those who do not see it harming the housing market, predict the savings for most households could actually become a boon to homeownership.

"For many lower and middle-income taxpayers, a higher standard deduction will increase their after-tax income, which could end up boosting home buying demand from these groups if net income rises enough," said Gudell of Zillow.

"At the end of the day, what really matters is whether people have more or less after-tax money to spend on housing and other living expenses," she said.

As to those at the higher end who would see no benefit, Smith wrote, "There is an old saying, 'If you can afford a Ferrari you aren't worried about the price of gas or an oil change.'

"Similarly, if you can afford a $10 million dollar estate, you aren't worried about the mortgage interest and property tax deduction."

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