• Under current law, 44 percent of U.S. homes are valuable enough to make itemizing and taking the Mortgage Interest Deduction more financially worthwhile for married tax filers than taking the standard deduction.
• Under the House plan, that proportion of homes drops to 12 percent.
• Under the Senate plan, that proportion of homes drops to only 7 percent.

Changes to the nation’s tax code as proposed by the U.S. House of Representatives and the Senate are set to impact current and would-be homeowners in a number of ways.

Increasing the standard deduction and limiting or eliminating key itemized deductions – including the Mortgage Interest Deduction (MID), property tax deduction and deductions for state and local taxes (SALT) – make it very likely many individual filers may choose not to itemize. More homeowners may instead choose to take the larger standard deduction, as the pool of homes worth enough to make maximum financial use of these deductions shrinks.

Tweaks from the House bill that impact the standard deduction vs. itemizing decision:

• Lowers the cap on MID to $500,000 from $1 million currently
• Eliminates MID-eligibility for second homes
• Essentially doubles the standard deduction (to $24,000 for married couples filing jointly, from $12,700 currently)
• Eliminates deduction for state and local income or sales taxes
• Caps state and local property tax deduction at $10,000

Tweaks from the Senate bill that impact the standard deduction vs. itemizing decision:

• Keeps existing $1 million MID cap
• Essentially doubles the standard deduction (to $24,000 for married couples filing jointly, from $12,700 currently)
• Eliminates deduction for state and local income or sales taxes
• Eliminates deduction of state and local property taxes

Nationally, under the current setup, roughly 44 percent of homes are worth enough for it to make sense for the owner to itemize their deductions and take advantage of the mortgage interest deduction.[1] Under the House plan, that proportion of homes drops to only 12 percent, and drops even further under the Senate proposal – to 7 percent.[2]

The share of homes impacted under each proposal will vary greatly from county-county based on local home values and property tax rates. For example, Zillow’s analysis shows that about 51 percent of homes in Cook County (the city of Chicago and surrounding areas) are worth enough under current law for the mortgage interest paid in the first year of the loan to be sufficient for a homeowner to take the MID instead of the standard deduction.

Under the House bill, just 11 percent of homes in the Chicago area are valued high enough for the owner to get a better deal by taking MID and deducting a capped amount of property taxes than they would by taking the standard deduction. Under the Senate bill, the standard deduction would be more attractive to more homeowners in Cook County – only 4 percent of homes in the area are valued high enough to get a better deal through the Senate’s MID plan.

Methodology

Home value assumptions were based on property-level Zestimates as of November 9. Other data sources and assumptions made for purposes of this analysis include:

• County property tax rates were based on 2016 numbers from the National Association of Home Builders.
• State income tax rates are from 2016, and assume joint filing (where there is a difference between joint and single filing)
• Current national marginal tax rates
• State and federal tax liability is based on 2016 median household income by county
• New standard deduction amounts based on initially published/reported House and Senate plans as of date of publication (11/9/17)
• We calculate interest paid assuming the borrower is in the first year of paying back their loan, when interest payments are highest.
• We assume a buyer obtains a 30-year, fixed-rate mortgage with a 4 percent interest rate
• We assume a buyer purchases a home with a 20 percent down payment

[1] Assuming they are in the first year of paying back their loan – when interest payments are largest – and they have a 30-year, fixed-rate mortgage at a 4 percent interest rate.

[2] In the large majority of counties analyzed, the Senate bill shrinks the pool of MID/deduction-eligible homes more than the House bill – but not all. In a few dozen counties, the House bill limits MID feasibility more than the Senate version. This is likely because in these counties: Many homes are valued in the window between $625,000k and $1.25 million (the maximum-valued homes eligible to take full advantage of MID under the House and Senate plans, respectively, assuming a 20 percent down payment); and/or because these counties feature very low state and local property taxes.