How Trump tax plan would alter mortgage interest deduction

Homeowners have a deduction from their taxes for the interest they pay on their mortgages.

Under President Trump’s tax proposal, some Americans would likely be steered away from this tax break.

The plan would also eliminate many existing itemized deductions, so that some people who now itemize might end up paying more.

Each year, taxpayers subsidize America’s homeowners by roughly $70 billion, with the benefits flowing disproportionately to coastal areas with high incomes and pricey homes, from New York and Washington to Los Angeles and San Francisco.

The subsidy for homeowners comes in the form of a deduction from their taxes for the interest they pay on their mortgages. An affluent New Yorker, for example, would have saved an average of $3,694 in 2015, according to an analysis of IRS data released Wednesday by the real estate company Apartment List. In metro Los Angeles, the deduction was worth an average of $4,568, in San Francisco still more: $5,500.

But under President Donald Trump’s tax proposal, some Americans would likely be steered away from this tax break. Here’s why: Trump’s plan would double the standard deduction, which taxpayers can take if they don’t itemize deductions. The doubled standard deduction could exceed the savings many receive now from itemizing their expenses for housing, state and local taxes and related costs.

But the Trump plan would also eliminate many existing itemized deductions, including those for state and local taxes, so that some people who now itemize might end up paying more.

The president’s proposal would essentially marginalize the use of the mortgage interest deduction, which is the government’s primary form of direct housing assistance: It distributes three times more money this way than it does in the form of vouchers for impoverished renters.

Trump administration officials say their tax plan is designed to benefit the middle class. Yet it’s not clear from the scant details of the framework released so far how many families would enjoy lower tax bills and how many would face higher bills.

Even though the Trump measure would preserve the mortgage interest deduction, it’s confronting resistance from the real estate industry because it would likely reduce the number of people seeking the deduction.

Estimates by the real estate firm Zillow suggest that someone buying a home worth at least $305,000 today would still qualify for the deduction. But under the Trump plan, only homes worth $801,000 or more would receive the deduction.

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