President Donald Trump and the House GOP unveiled a massive tax-reform bill on Thursday.
It proposes a new limit — $500,000 from the current $1 million — for home-mortgage-interest deductions.
Millennials and buyers in expensive markets would be most affected by the disappearing homeownership incentives.
President Donald Trump's new tax plan just dealt a blow to many would-be homeowners.
But Republicans have proposed paring down popular homeownership incentives, which would likely affect millennials and millions of people living in high-cost housing markets.
The tax plan cuts the $1 million limit for the home-mortgage-interest deduction in half. The deduction allows homeowners to write off the interest they pay on home loans, effectively reducing their taxable income. The bill would apply to new home purchases and make it so homeowners can only deduct interest payments on up to $500,000 worth of home loans.
In previous generations, that may have been a typical mortgage amount for a first-time homebuyer, but today's young people are different. Millennials are "skipping starter homes," Zillow CEO Spencer Rascoff said, and moving straight to the $1 million range when its time to buy their first house.
The mortgage size on a $1 million home would be $800,000 — assuming the homebuyer makes a down payment of 20% of the purchase price, though some are putting down payments as low as 10%. Under the proposed bill, the homeowner could only deduct interest on the first $500,000 of the loan, leaving them to shoulder the rest of the principal and interest payments without the benefit of a tax deduction.
"Eliminating or nullifying the tax incentives for homeownership puts home values and middle-class homeowners at risk, and from a cursory examination, this legislation appears to do just that," William E. Brown, president of the National Association of Realtors (NAR), said in a statement.
What's more, home prices — and thus, loan amounts — are much higher in pricey coastal markets like New York City, San Francisco, Boston, Los Angeles, and Washington DC. Millennial populations in these cities are only increasing.
Jerry Howard, the CEO of the National Association of Home Builders, estimated that 7 million homes would be excluded from the mortgage-interest deduction, amounting to about a third of the homes in California.
"You're talking about potentially causing housing recessions in some of the biggest markets in the country, and those kinds of recessions tend to have spillovers," Howard said. "We're worried about a national housing recession."