The Trump tax plan will, of course, save the rich millions of dollars. It will also help some people at the bottom by pushing them off the tax rolls. The middle class, however, will get beaten over the head with a massive tax increase. Essentially, Trump’s plan would eliminate the mortgage interest deduction that middle-class American homeowners depend on. It would also eliminate other tax deductions middle-class Americans depend on such as the mortgage insurance deduction and state income tax deduction. Translation: if you are in the middle class, be prepared for Trump to tax you heavily if his plan passes.
Take a single female who’s earning $65,000 a year and paying $1,000 a month in rent in Colorado. She decides to make a little higher monthly payment to become a homeowner. She puts 5 percent down on a $265,000 condo, which increases her monthly housing costs to $1,193 (principal and interest). That’s a common scenario for a first-time buyer like her, because while her costs go up, she now has a home of her own and the chance to build equity over time.
But under today’s tax code, her monthly costs actually go down, according to an NAR analysis, because when she claims all of the itemized deductions available to her as a home owner, she ends up with a net tax benefit of over $3,300, or roughly $275 a month, compared to what she would get by taking the standard deduction. When that $275 a month is factored into her monthly housing costs, she’s paying significantly less than she was as a renter.
Under the Administration’s tax plan, that advantage goes away almost entirely because she can only deduct her mortgage interest and charitable contributions Without the option to deduct real estate taxes, state and local taxes, and mortgage insurance premiums, her net tax advantage over taking the standard deduction falls to a little more than $150. Although that’s still a net gain, it’s just a shadow of her current benefits and not nearly enough to bring her monthly housing costs down to what she was paying when renting.
The bottom line is that for 95% of homeowners in America, the Trump tax plan will destroy the mortgage interest deduction. The middle class bailed out the rich and the poor during the Great Recession–they bailed out the rich bankers who destroyed the economy and the poor who took out loans they couldn’t afford. Looks like the middle class will be bailing out the rich and the poor once again.