Congressional Republicans are proposing a change to federal tax laws that could affect home buyers, owners and wannabe owners across the country.
For one thing, fewer people would want to itemize their deductions if Congress passes the overhaul, which would increase the standard deduction to $24,000 from $12,700 for a married couple filing jointly.
The change would mean your home would need to be worth more — a whole lot more — before it would make sense for you to bother itemizing your tax write-offs to take advantage of the mortgage interest deduction.
Right now, fewer than a third of the homes across the country are valuable enough for their owners to use the mortgage interest deduction, according to real estate website Zillow.
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Were the standard deduction to double, that number would fall to 5 percent.
Zillow calculated how much a home would have to be worth before a homeowner would want to itemize his or her deductions:
Current homeowners: If your home cost $305,000 or more, it might be worth it to file an itemized tax return, according to Zillow’s figures. Were the standard deduction to double, your home would have to cost $801,000 before itemization would be worth it.
Three in four buyers who bought homes in Pierce County since 2011 paid less than $305,000, according to Northwest Multiple Listing Service data analyzed by The News Tribune.
Move-up buyers: The policy shift would have a bigger impact on “move-up buyers,” said Heather Hendrix, a senior mortgage specialist at Directors Mortgage in University Place.
These owners have equity in their first or subsequent home, and want an upgrade — more rooms, a more prestigious neighborhood or perhaps they have a higher income and can afford more.
They are more likely to have homes worth more than $305,000 and thus to itemize currently. Few homeowners in Pierce County have homes worth $801,000 or more.
Aspiring home buyers: Those looking to buy their first home usually buy a less expensive home. Pierce County’s median home price in September was $318,750, up more than 14 percent since that month last year.
For first-time home buyers, using the mortgage interest deduction is rarely front-of-mind, Hendrix said.
“It’s almost like monopoly money until they file their taxes that first year,” she said. When the mortgage interest deduction is brought up, “You can see that blank stare.”
Since 2011, a little more than 46 percent of homes sold statewide were valued at more than $305,000, according to a News Tribune analysis. In that same time, 5.7 percent of homes sold for $801,000 or more.
Other areas of interest:
▪ Pierce County: more than a quarter of homes sold for $305,000 or more; 0.9 percent sold for $801,000 or more since 2011.
▪ Thurston County: nearly 24 percent of homes sold for $305,000 or more; 0.3 percent sold for $801,000 or more.
▪ King County: more than two in three residences sold for more than $305,000; 12.3 percent sold for $801,000 or more.
Some real estate agents worry fewer people will buy homes if tax policy shifts and makes the mortgage interest deduction less useful.
About one-third of taxpayers nationwide itemize, according to the Tax Policy Center. Of those who do, three in four claim the mortgage interest deduction.
But owning a home instead of renting can have more benefits than just affecting your tax bill, said Matthew Gardner, chief economist with Windermere Real Estate.
“If you buy instead of rent, it’s essentially forced savings,” he said. “Even with a doubling of the standard deduction it doesn’t make home buying irrelevant. … You are going to see hopefully asset appreciation over time.”
Though home values, especially in the Pacific Northwest, are likely to continue to climb, the tax change could slow the rise of home prices because fewer people would buy if the tax benefit is important to them, Gardner said.
Pierce County has a little under two months worth of inventory for sale, according to Windermere Processional Partners.
“There will still be more people wanting to buy than there are homes available,” Gardner said. “We are certainly not in a balanced market right now.”