Luna Harper
President Donald Trump's tax plan, enacted in 2025, has introduced significant changes to the US tax code, with potential implications for both homeowners and renters. The plan includes provisions such as the reinstatement of full bonus depreciation, allowing for immediate expensing of qualifying assets, and an increase in the Low-Income Housing Tax Credit. These changes are expected to impact the housing market, with some suggesting they will make renting a more attractive option for many Americans.
So, does the Trump tax plan tip the scales in favour of renting over buying? Let's explore the potential advantages and disadvantages for both homeowners and renters under the new tax rules.
| Characteristics | Values |
|---|---|
| Date | July 4, 2025 |
| Name | One Big Beautiful Bill |
| Impact on renters | Does little for lower-income renters |
| Impact on homeowners | May negatively impact primary residence homeowners |
| Impact on investors | Likely to help high-end buyers and investors |
| Tax breaks | $10,000 deduction for state and local taxes |
| Tax cuts | Extends tax cuts |
| Social security | Slashes social security net programs |
| Deductions | Reinstates full bonus depreciation through 2029 |
| Deductions | Removes deduction on home equity debt |
| Deductions | Locks in tax breaks for homeowners |
| Deductions | Permanently increases states' annual housing credit allocations from 9% to 12% |
| Deductions | Includes a special depreciation allowance for qualified production property |
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What You'll Learn
Trump's tax plan may encourage real estate investment purchases
Trump's tax plan, known as the "One Big Beautiful Bill" or the "Big Beautiful Bill", has been criticised for favouring high-income Americans and doing little for lower-income renters and first-time buyers. However, it may have the unintended consequence of encouraging real estate investment purchases.
The bill includes the return of 100% bonus depreciation, which allows real estate investors to fully deduct the cost of qualifying renovations, property improvements, and certain building components immediately, rather than spreading deductions over several years. This could incentivise investors to undertake renovation or development projects. Additionally, the bill expands the Low-Income Housing Tax Credit, providing a 10-year tax break for developers and investors creating affordable rental housing for low- and moderate-income tenants.
Trump's tax plan also introduces changes that may negatively impact primary residence homeowners, such as the removal of the deduction on home equity debt and the reduction in the mortgage interest deduction cap. These changes could create a negative incentive for owner-occupied housing and may drive homeowners to sell their primary residences and invest in out-of-state rentals instead.
Furthermore, the tax plan includes a permanent increase in states' annual housing credit allocations from 9% to 12%, which should help finance more affordable housing rental projects. The plan also lowers the bond financing threshold for tax-exempt bond deals, encouraging developers to finance more projects.
While the impact of Trump's tax plan on the housing market is complex and varies across regions and income groups, it appears that it may create incentives for real estate investment purchases, particularly in the rental market.
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It could negatively impact primary residence homeowners
Trump's tax plan could negatively impact primary residence homeowners in several ways. Firstly, the plan includes a cap on the deductibility of state and local taxes, which can result in a higher taxable income for homeowners. This is especially detrimental for those in high-income, high-property-tax states such as California, New York, Washington, and New Jersey.
Secondly, the plan reduces the limit on mortgage interest deductions. Previously, homeowners could deduct mortgage interest on up to $1 million of debt, but under the new plan, this limit has been lowered to $750,000 for new purchases. This could disincentivize homeownership and encourage renting, as the tax savings from owning a home become less advantageous.
Thirdly, the plan eliminates the deduction on home equity debt unless the proceeds are used for a trade or business acquisition or to improve a rental property. This could be a financial strain on those who rely on this deduction, potentially slowing down home purchases and impacting the housing market.
Additionally, Trump's tax plan includes a grandfathering clause that allows existing homeowners to continue deducting mortgage interest on up to $1 million of debt. While this benefits current homeowners, it could incentivize them to stay in their homes longer, reducing the supply of available housing for sale and potentially increasing sales prices.
Overall, these changes could make renting more attractive than owning a home, especially for those in high-tax states or those with higher incomes. The impact of these tax changes may vary across regions and income groups, but it is clear that primary residence homeowners could face negative consequences, while real estate investors and high-end buyers may benefit from the new tax plan.
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It will likely benefit high-end buyers and investors
Trump's One Big Beautiful Bill Act, which was passed by the House Republicans, is likely to benefit high-end buyers and investors in the US housing market. The bill extends tax cuts and reduces social security net programs. It reinstates full bonus depreciation through 2029, allowing investors in real estate to immediately expense qualifying assets like renovations and furnishings, reducing their tax bills and encouraging reinvestment.
The bill also includes a special depreciation allowance for qualified production property, which could create additional tax advantages for investors in logistics, warehousing, or production-related facilities. These changes are likely to disproportionately benefit higher-income buyers in high-tax states, such as New York, New Jersey, Massachusetts, and Illinois, where housing markets are tight and prices are high.
Additionally, Trump's tax plan makes it more profitable to own income-generating real estate assets. Investors can create an LLC for a relatively low cost and take advantage of the new 20% deduction for pass-through companies. The tax plan also includes changes to mortgage interest rules, such as limiting the mortgage interest deduction for primary and secondary residences, which may create a negative incentive for owner-occupied housing and incentivize real estate investing.
Furthermore, the tax reform doubled the lifetime gift exclusion, benefiting those involved in estate planning and real estate investing. While not everyone will benefit from all the changes, the overall goal of offering tax breaks may spur economic growth, with many Americans seeing higher tax returns.
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It may negatively impact low-income households and renters
Trump's One Big Beautiful Bill Act, which was passed by House Republicans, is likely to negatively impact low-income households and renters. The bill extends tax cuts and reduces social security net programs, and its approval has been marked as a significant win for the president. However, it has been criticised for benefiting the rich while neglecting the poor.
The bill reinstates full bonus depreciation through 2029, allowing short-term rental owners to immediately expense qualifying assets, such as appliances, renovations, and furnishings. This change disproportionately benefits higher-income buyers in high-tax states, where housing markets are tight and prices are high.
Additionally, the bill includes a cap on the deductibility of state and local taxes, which has led to a decrease in purchases of expensive homes in high-tax areas and is expected to result in a general decline in housing prices. This, along with the removal of the deduction on home equity debt, may negatively impact primary residence homeowners and create an incentive for them to sell their properties and invest in out-of-state rentals instead.
Furthermore, the bill's impact on the struggling US housing market is a cause for concern. The market is facing challenges due to elevated mortgage rates, sky-high prices, rising costs, and growing economic uncertainty. The bill's provisions affecting both housing demand and supply are expected to have varying impacts across regions and income groups, with low-income households potentially bearing the brunt of the negative consequences.
While the bill includes provisions such as the Low-Income Housing Tax Credit, which aims to encourage the development of affordable rental housing, the overall impact of the bill may still make renting less attractive for low-income individuals.
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It could increase the supply of affordable rental housing
Trump's tax plan includes several changes that could increase the supply of affordable rental housing. Firstly, the plan expands the Low-Income Housing Tax Credit (LIHTC), which provides a 10-year tax break for private developers and investors building or renovating affordable rental housing for low- and moderate-income tenants. This expansion could incentivize more development and renovation of affordable rental units, increasing the supply of such housing. Additionally, the plan permanently increases states' annual housing credit allocations from 9% to 12%, further boosting states' capacity to finance affordable housing rental projects.
The tax plan also makes changes to depreciation rules, which could impact the supply of affordable rental housing. It reinstates full bonus depreciation through 2029, allowing investors in rental properties to immediately expense qualifying assets like appliances, renovations, and furnishings. This could encourage investment in rental properties and stimulate renovation activities, potentially increasing the supply of affordable rental units. However, it's important to note that bonus depreciation is set to be reduced by 20% each year starting in 2023, which may impact the attractiveness of such investments over time.
Another aspect of the tax plan that could influence the supply of affordable rental housing is the impact on homeowners. The plan includes changes to mortgage interest deductions, state and local tax (SALT) deductions, and the removal of certain tax credits. These changes could make homeownership less attractive or affordable for some, potentially leading to a shift towards renting. As a result, there may be an increase in demand for rental housing, including affordable options. Additionally, some homeowners may choose to sell their primary residences and become rental investors, further contributing to the supply of rental properties.
While the tax plan's impact on the supply of affordable rental housing is expected to be positive, it's important to consider regional variations. The plan's effects may differ across states and local areas due to factors such as tax burdens, home prices, and supply constraints. Additionally, critics argue that the plan disproportionately benefits higher-income individuals and regions with high housing prices and elevated taxes, which could influence the availability and affordability of rental housing in specific regions. Overall, while Trump's tax plan has the potential to increase the supply of affordable rental housing, its impact may vary, and it may take time for the full effects to be realized.
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Frequently asked questions
The One Big Beautiful Bill is a piece of legislation passed by the House Republicans on July 4, 2025, that extends tax cuts and reduces social security net programs.
The bill is likely to help high-end buyers and investors in the housing market, while doing little for lower-income renters and potential first-time buyers. It may also affect the supply of available housing for sale, subsequently increasing sales prices.
Yes, the bill allows owners to take advantage of the new 20% "freebie" deduction for pass-through companies, making it more profitable to own income-generating real estate assets.
The bill could make renting more attractive than owning a home for many Americans, especially those in high-income tax areas. It may also make more affordable rental units available over the next few years.
The bill reinstates full bonus depreciation through 2029, allowing real estate investors to immediately expense qualifying assets. It also includes a special depreciation allowance for qualified production property, which may create additional tax advantages for investors in logistics, warehousing, or production-related facilities.
