Zillow said that many individual filers will likely choose not to itemize in case the standard deduction is increased and itemized deductions are limited or eliminated. These itemized deductions include the mortgage interest deduction, property tax deduction and deductions for state and local taxes. As these deductions decrease, the pool of homes that have values enough to make financial use of deductions also shrinks.
Under current tax rules, about 44% of homes across the US are worth enough for it to make sense for the homeowner to take advantage of the mortgage interest deduction by itemizing their deductions rather than opting for a standard deduction.
This proportion of homes falls to only 12% given the proposed changes in the House plan and sinks even further to 7% under the Senate proposal, Zillow said.
According to Zillow, changes under the House bill that would affect standard and itemized deductions include a lower cap on the mortgage interest deduction to $500,000 from the current $1 million and the elimination of the deduction-eligibility for second homes as well as the deduction for state and local income or sales taxes. The House version also doubles the standard deduction and limits the deduction of state and local property tax to $10,000.
Meanwhile, the Senate version retains the existing $1 million cap for the deduction but doubles the standard the deduction and eliminates deductions for state and local income or sales taxes and property taxes.
How badly will a cut to the mortgage-interest deduction affect your borrowers?
Industry slams federal tax reforms as damaging for homeowners
Fewer homeowners would make use of the mortgage interest deduction under the Senate tax plan than in the House of Representatives proposal, according to study by Zillow.