Homeownership would no longer be a priority in the tax code if a reform plan released Wednesday by the Trump administration and congressional Republicans becomes law. The “Tax Reform Unified Framework,” known as the “Big 6” tax reform plan, is being touted as a way to cut taxes for the middle class. But it could hurt residential real estate by eliminating most itemized deductions in return for an increase in the standard deduction.

Although on its face, the change would seem to help many taxpayers by nearly doubling the standard deduction to $12,000 for single taxpayers and $24,000 for married couples, most middle-income homeowners who currently itemize would likely pay higher taxes, according to National Association of REALTORS® estimates. That’s because the repeal of most itemized deductions, including the deduction for state and local taxes, would exceed what people would gain under the higher standard deduction—even if the deductions for mortgage interest and charitable contributions are left in place, which the outline calls for. In addition, the personal and dependency exemptions that taxpayers take today would be folded into the higher standard deduction, eradicating their benefit.

NAR President William E. Brown said in a statement that REALTORS® favor tax reform without hurting homeownership and the transfer of real property, which are the backbone of the economy. “We have always said that tax reform—a worthy endeavor—should first do no harm to homeowners. The tax framework released by the Big 6 missed that goal. It recommends a backdoor elimination of the mortgage interest deduction for all but the top 5 percent, who would still itemize their deductions. When combined with the elimination of the state and local tax deduction, these efforts represent a tax increase on millions of middle-class homeowners.”

The framework calls for lowering the top individual tax rate from 39.6 percent to 35 percent and consolidating all other tax brackets into two, one with a tax rate of 25 percent and the other with a rate of 12 percent. A fourth bracket of above 35 percent could be added for the highest-income households, but the details of that weren’t specified. There are currently seven tax brackets in the code. In changes that would mainly affect wealthier taxpayers, the outline would eliminate the alternative minimum tax and the estate tax.

For corporations, the framework calls for lowering the top rate to 20 percent from 35 percent and lowering the top tax rate for so-called “pass-through entities” to 25 percent. Pass-through entities are taxed through the individual code and include limited liability companies, S corporations, and partnerships such as law firms and investment groups. Rules would be drawn up to prevent people from classifying personal income as business income to get the 25 percent pass-through rate. Other provisions call for immediate expensing of depreciable business assets except structures, limited to five years, and limiting the deductibility of interest on business loans for corporations.

Among credits that are singled out for preserving—rather than repealing—is the low-income housing tax credit, which gives businesses an incentive to invest equity in housing developments that are affordable to low-income renters. The plan laid out no details on the fate of 1031 like-kind exchanges. However, the document specifies that many, if not most, business deductions will be curtailed or repealed. This step-by-step guide will provide more details.

The outline is the starting point for drafting legislation that lawmakers will eventually vote on. Sen. Orrin Hatch (R-Utah), chair of the Senate Finance Committee, said at a hearing last week that he wants the process to be as bipartisan as possible. At that hearing, Iona Harrison, a real estate practitioner in Upper Marlboro, Md., testified that real estate must be protected because it’s essential to communities and economic growth. “We want to be sure the economic engine of homeownership and the transfer of real property in this country remain unfettered,” she said at the hearing.

—Robert Freedman, REALTOR® Magazine