The president’s tax proposal released last month has caused some worry among home owners. DISCLAIMER: This article is based on my opinion and not fact, you should always consult a tax professional for advice before making any big financial decisions. The proposal would double the standard deduction. This would threaten to nullify the mortgage interest deductions enjoyed by some home owners currently. While this may be true, in my opinion the increase in standard deduction is a good thing for most tax payers.
The increase in the standard deduction can go one of two ways for any given tax payer or family. In the first and more advantageous scenario, the increased deduction would reduce your taxable income, resulting in a decrease in what you owe in taxes. This would be the case if your itemized deductions were now less than the new standard. On the other hand, if your itemized deductions were still more than the new standard deduction, it would have no affect on your taxable income.
This brings up the question, would decreasing the usefulness of the mortgage interest deduction negatively impact home values? In my opinion, it won’t have any noticeable impact and tax deduction of mortgage interest is one of many advantages of home ownership. I believe there are other equally (if not more) important reasons to purchase a home, such as financial gains, pride in ownership, and the security owning offers versus renting.
In addition, if a buyer of a typical house in Sunnyvale were to use conventional financing, they would most likely still be writing off more than the increased standard deduction in interest alone.