GOP tax plan cuts mortgage deduction in half -- starting today

How would GOP tax plan affect middle class Americans?

Do you count on your mortgage deduction at tax time? If your loan or loans are more than $500,000, you won't be able to deduct the interest from your federal income taxes under the proposed Republican House bill unveiled today, which cuts the current deduction cap from $1 million.

What's more, the reduction would be effective starting today, if the bill passes and is signed into law, according to the Wall Street Journal. Yes, that means Nov. 2, 2017.

The legislation would also eliminate the second home deduction, meaning you'd only be able to deduct interest on your primary home. It also wouldn't apply to refinancings over $500,000, the Journal reported.

"The mortgage deduction is one of the *most* sacred cows in the tax code, and I'm impressed lawmakers are going after it," Scott Greenberg, senior analyst at the Tax Foundation said in a tweet that emphasized the word most.

It keeps the property tax deduction, only capped at $10,000.

Home builder stocks fell on the news. The SPDR Series Trust SPDR S&P Homebuilders ETF (XHB), which includes major homebuilder companies including Toll Brothers (TOL) and Lennar (LEN) dropped more than 5 percent. Home-improvement retailers Home Depot (HD) and Lowe's (LOW) also slipped. 

"We see this as especially negative for the vacation- and second-home market," Cowen analyst Jaret Seiberg wrote in a note today. That includes time shares, although "there are questions about whether one can avoid this with the use of a home equity loan." 

The proposal would likely hit hardest Americans in major metropolitan areas, where home values are rising fastest. In the San Francisco Bay area, with some of the highest housing costs in the country with a median home price of $768,000, about $114,400 in mortgage interest would no longer be deductible, the San Jose Mercury News reported.

Residents of Seattle, Portland, San Francisco, Los Angeles, San Diego, New York City, Boston and Miami all earn far less, on average, than what's needed to buy the median-priced home, according to a 2016 analysis by HSH Associates. More affordable cities include Cinncinati, Pittsburgh, Cleveland, Detroit and Atlanta.

Home prices rose in "nearly all metro areas" in the third quarter, with the national median existing single-family home price at $254,000, up 5.3 percent from the third quarter of 2016, the National Association of Realtors said in a statement on its website. today.

Single-family home prices last quarter increased in 92 percent of measured markets, with 162 out of 177 metropolitan statistical areas, the group said.

The National Association of Home Builders said in a statement Thursday it opposes the bill. "The House Republican tax reform plan abandons middle-class taxpayers in favor of high-income Americans and wealthy corporations," the statement said. "The bill eviscerates existing housing tax benefits by drastically reducing the number of home owners who can take advantage of mortgage interest and property tax incentives."

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