Zillow Chief Economist Weighs in on GOP Tax Plan

Many in the housing industry have been concerned over the possible elimination of the mortgage interest deduction, but now that the framework of the plan has been released, their concerns are shifting to how the mortgage interest deduction is changing.

In a Forbes article authored by Zillow Chief Economist Svenja Gudell, Gudell said that currently, 29 percent of all U.S. homes qualify for the mortgage interest deduction (MID), but under the proposed tax plan, that number would fall to 5 percent. Additionally, the plan includes provisions to double the standard deduction and eliminate deductibility of state and local taxes, excluding property taxes.

“But a doubling of the standard deduction would likely mean fewer American taxpayers would choose to itemize their deductions and opt to take advantage of MID,” Gudell said.

Based on Zillow’s estimate on the home price necessary for both the MID and state and local property taxes to exceed the standard deduction, a current homeowner would have to purchase a home of at least $305,000 for the state and local property tax deduction to make more sense than the MID. According to its research, Zillow says that would encompass about 30 percent of American homes.

With the proposed doubling of the standard deduction and elimination of state and local taxes, the homebuyer would need to purchase a home of at least $801,000. This is about 5 percent of American households.

“Currently and under the proposed changes, itemizing deductions and utilizing MID makes the most financial sense in communities with high housing costs and high local taxes,” Gudell said.

For example, under the current law, Gudell said 99 percent of homes in the San Francisco metro would qualify for the combination of MID and property tax deductions to be beneficial. In Los Angeles, 96 percent of households are eligible. However, in metros such as Pittsburgh or St. Louis, only 10 percent and 13 percent qualify respectively.

“Under the proposed changes, itemizing deductions based on these two deductions alone would make financial sense for 59 percent of San Francisco homes and 30 percent of Los Angeles homes, compared to about 1 percent of St. Louis homes and less than 1 percent of Pittsburgh homes,” Gudell said.