Tax plan could hit Boston-area homebuyers. If it happens

Suzanne Kreiter/Globe staff

The federal tax overhaul proposed Thursday could slow one of the main drivers of the Boston area’s housing market: a surge of affluent home buyers.

The bill filed by congressional Republicans would cap the amount of mortgage loan interest and property taxes that homeowners can write off, measures that could have outsized impact on Greater Boston, particularly in communities where million-dollar price tags and five-figure tax bills are standard.

The legislation proposes to slash in half the size of a mortgage eligible for the federal interest deduction — from $1 million to $500,000. It also would limit the deduction for local property taxes at $10,000.

If enacted, those changes would effectively increase the cost of owning a home for many people in what is already one of the nation’s priciest housing markets, said Charlie Nilsen, national director of residential lending at Boston Private Bank.

“It’s hard to find any good news in this for the housing market in Boston, except maybe at the lower end,” he said. “It’s probably going to have a pretty significant impact.”

That impact, however, would vary widely, depending on location. Statewide, 9.1 percent of home loans this year were issued for $500,000 or more, according to ATTOM Data Solutions.

Buyers of moderately priced homes in central, southern and northern parts of Massachusetts, and in less pricey pockets of Greater Boston, would likely see little change in their federal tax obligation. In addition, Republicans propose to nearly double the standard deduction for tax filers — to $24,000 for married couples, $12,000 for individuals. As a result, fewer taxpayers would itemize their returns, meaning they wouldn’t claim the mortgage tax break.

But for new buyers in the 35 cities and towns around Boston where median home prices this year have topped $625,000 — the price at which buyers putting 20 percent down would still need to borrow at least $500,000 — the changes could prove costly. The tax implications — whether for empty-nesters buying condos in central Boston or young families moving to many of the region’s best school districts — could easily amount to thousands of dollars a year.

For example, someone who borrows $1 million — 80 percent of the $1.25 million median price of a single-family home in Newton this year, according to the Massachusetts Association of Realtors — could face a tax increase of nearly $5,000, and more if they’re in a high tax bracket. The cap on property tax deductions could add to that obligation, particularly in the 23 Massachusetts communities where the average property tax tops the proposed cap of $10,000.

Further, since the changes wouldn’t apply to current mortgages, economists warn that some would-be sellers might choose to stay put rather than sell their homes, exacerbating an inventory shortage that has driven up prices throughout the region.

“The market for first-time buyers has been decimated by lack of supply already,” said Paul Yorkis, a Medway real estate agent who heads the Massachusetts Realtors association. “If what has been proposed ends up being passed, it’d become an even more difficult housing market in Boston.”

Yorkis was reading the newly released bill in Chicago, where he was attending a convention of the National Association of Realtors. As might be expected, the tax plan was a hot topic. The real estate group issued a statement saying the proposed overhaul, at first glance, “puts home values and middle class homeowners at risk.” The head of the National Association of Home Builders said it could cause housing markets to collapse in some parts of the country.

Perhaps surprisingly, the mortgage interest measure is facing pushback from longtime critics of the deduction. The National Low Income Housing Coalition — which argues that the tax break subsidizes expensive homes in high-cost markets — called the plan “a nonstarter” because it uses the estimated $95.5 billion in savings over a decade to pay for corporate tax breaks, instead of affordable housing programs.

“Tax reform is a once-in-a-generation opportunity to address one of the biggest barriers to economic success for families struggling to get by: the lack of decent, accessible, and affordable homes for the lowest income people,” the coalition said in a statement.

That sort of opposition — from both industry officials and affordable housing advocates — has kept the mortgage tax break largely untouchable since the last time Congress tackled a tax overhaul, in 1986.

While only 30 percent of households nationwide itemize deductions — and probably far fewer would under the tax plan’s new higher standard deduction — the real estate industry has succeeded at painting the mortgage interest break, in particular, as a boon to the middle class, said Michaele Morrow, a professor of tax policy at Suffolk University.

As the Trump administration and congressional Republicans hash out the bill in the weeks to comes, she predicted, the real estate lobby would make that case even more forcefully, and could eventually succeed in keeping the deduction untouched.

“They usually win out,” Morrow said. “I’ll be kind of shocked if this ends up happening.”