A post from our Loan Officer, Dorothy Chiappe, who has over 30 years experience in the industry.
Friends and Clients —
Have you heard the news? The new administration is looking to revamp the tax code — in a way that affects the long-standing mortgage interest deduction (MID).
Some people have concerns that this might negatively impact home sales and drive down home values. I believe these updates to the new tax code will do just the opposite.
Allow me to give you a bit of background. Under the current system, you have the option to include the interest you pay on your mortgage in your itemized tax deductions. Should the itemized tax deductions turn out to be greater than your standard deduction, you will save more on your taxes.
Currently about 20% of homeowners who have a mortgage take advantage of the MID which leads to an average savings of $2,000 in taxes. Under the proposed new tax plan, the standard tax deduction would almost double. For example, the standard deduction for a married couple would go from $12,600 to $24,000. If this happens, an estimated 84% of people who are currently opting to itemize taxes would simply go for the standard deduction. This is the part that has some people worried. After all, if people don’t take advantage of the MID, won’t this decrease the value of owning a home?
Here are two reasons why that won’t happen:
First, most people do NOT buy a home in order to save on taxes. The National Housing Survey confirms this fact. The top reasons why people buy a home include wanting to find a good place to raise children, owning a physical structure where you and your family feel safe, allowing for more space for your family, and gaining the right to make renovations to your living space…
…but there’s no mention of saving on taxes. The seasoned Realtors at Provident Partners agree. Clients aren’t buying homes for a tax break.
Second, overall taxes will actually be lower under the proposed new plan. Traditional estimates of the impact of the MID assume other taxes would stay the same. If this is the case, and the deduction goes away, home prices could indeed suffer to an extent. However, under the proposed new plan, the tax burden will be lessened in total.
Instead of losing money due to not claiming the MID, people will be gaining money by having to pay less in taxes altogether. With more disposable income, people will have an expanded budget and will likely spend more on a home. This will drive up sales as well as prices.
The fact is, current home prices around Phoenix keep increasing — not because of tax breaks, but because of tight supply.
The market is getting stronger and the best time to buy is NOW. Give me a call at (480) 314-1414 if you are ready to make your move.
Your Arizona Licensed Loan Officer,