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Tax reform plan cuts mortgage interest deduction in half

America’s popular mortgage interest deduction is about to lose a lot of its punch.

The House Republican tax plan halves the cap on the deduction of mortgage debt for newly purchased homes to $500,000. It does, however, maintain the current deduction of up to $1 million in mortgage debt for current homeowners.

The plan also nearly doubles the standard deduction, meaning fewer taxpayers would itemize and take the mortgage interest deduction. Currently, about 21 percent of filers take the mortgage deduction, but under the new framework only about 4 percent would, according to recent estimates from the Tax Policy Center.

The Republican plan also allows state and local property tax deductions of up to $10,000.

Homebuilder and overall housing stocks moved lower on the news and are now at their worst levels of the day.

The housing industry has been lobbying hard to keep homeowner incentives, and this is not what they were looking for.

“We are currently reviewing the details of the tax proposal released today, but at first glance it appears to confirm many of our biggest concerns about the Unified Framework,” said National Association of Realtors President William Brown, in a statement.

“Eliminating or nullifying the tax incentives for homeownership puts home values and middle-class homeowners at risk, and, from a cursory examination, this legislation appears to do just that.”

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