First Draft of Tax Reform Bill: A Game-Changer for Real Estate

On May 12, 2025, the House Ways and Means Committee released the first draft of the Tax Reform Bill, bringing a wave of optimism to the real estate sector. With provisions that directly benefit small business owners, homeowners, and prospective buyers, this bill could be a game-changer for the housing market. As we face a historic shortage in housing supply and ongoing affordability challenges, these tax measures are more crucial than ever. In this post, we’ll dive into the key provisions of the draft bill and explore how they can empower home buyers and sellers.

Why This Bill Matters for Real Estate

The real estate sector accounts for nearly one-fifth of the U.S. economy, making it a vital driver of economic health. However, with rising home prices and limited inventory, affordability has become a pressing issue for many Americans. The draft bill addresses these challenges head-on by preserving and enhancing tax benefits that support homeownership, small businesses, and real estate investment. Let’s break down the key provisions and what they mean for you.

Key Provisions of the Draft Bill

1. Qualified Business Income Deduction (Section 199A)

• What it is: This deduction allows small business owners and independent contractors to deduct a portion of their business income from their taxes.

• What’s changing: The draft bill increases the deduction from 20% to 23% and makes it permanent.

• Why it matters: Over 90% of realtors are classified as independent contractors or small business owners. This enhanced deduction means they can keep more of their earnings, reinvest in their businesses, and better serve their clients. It’s a win for the entire real estate ecosystem.

2. State and Local Tax Deduction (SALT)

• What it is: The SALT deduction allows taxpayers to deduct state and local taxes (like property taxes) from their federal taxes, up to a certain limit.

• What’s changing: The cap is tripled from $10,000 to $30,000 for households earning under $400,000. However, the bill doesn’t eliminate the “marriage penalty,” so both single filers and married couples can deduct up to $30,000.

• Why it matters: Homeowners in high-tax states will benefit from a higher deduction, reducing their overall tax burden. This is especially important for maintaining housing affordability in areas with higher property taxes.

3. Individual Tax Rates

• What it is: These are the tax rates that individuals and married couples pay based on their income.

• What’s changing: The current lower tax rates are made permanent and will be adjusted for inflation.

• Why it matters: Lower tax rates mean more disposable income for taxpayers, which can make homeownership more affordable. With housing prices on the rise, this provision helps ease the financial pressure on prospective buyers.

4. Mortgage Interest Deduction (MID)

• What it is: The MID allows homeowners to deduct the interest they pay on their mortgage from their taxable income.

• What’s changing: The draft bill preserves the MID at its current level and makes it permanent.

• Why it matters: This deduction is a cornerstone of housing affordability. By reducing taxable income, it makes owning a home more accessible and supports the stability of the housing market. Its preservation is a major victory for homeowners and the real estate sector.

5. Business SALT and 1031 Like-Kind Exchanges

• What it is: Section 1031 like-kind exchanges allow real estate investors to defer capital gains taxes when they sell one property and reinvest in another. Business SALT refers to the ability of businesses to deduct state and local taxes.

• What’s changing: The draft bill protects 1031 exchanges and maintains the ability for most businesses to deduct state and local taxes. While there are some limits for high-income professionals (like law firms and hedge funds), these do not appear to affect real estate professionals.

• Why it matters: Protecting 1031 exchanges encourages continued investment in real estate, which is crucial for addressing the housing shortage. The unchanged Business SALT provisions also ensure that real estate businesses can operate without additional tax burdens.

Additional Positive Provisions for Real Estate

Beyond the key provisions, the draft bill includes several other measures that benefit the real estate economy:

• Child Tax Credit: Temporarily increased to $2,500 through 2028, helping families with housing costs.

• Estate and Gift Tax Threshold: Set permanently at $15 million (adjusted for inflation), supporting generational wealth transfer.

• Low-Income Housing Tax Credit (LIHTC): Enhanced to encourage the development of affordable housing.

• Opportunity Zones: Renewed with incentives to promote investment in underserved communities, including rural areas.

These provisions create a more favorable environment for home buyers, sellers, and real estate professionals alike.

How This Empowers Home Buyers and Sellers

For Home Buyers

• Lower taxes, more affordability: The permanence of lower individual tax rates and the preservation of the Mortgage Interest Deduction make it easier to afford a home.

• Relief in high-tax areas: The increased SALT deduction cap provides significant tax relief for buyers in states with higher property taxes.

• Support for families: The increased child tax credit offers additional financial flexibility for families looking to purchase a home.

For Home Sellers

• Investment-friendly policies: The protection of 1031 like-kind exchanges allows sellers to reinvest in new properties without immediate tax penalties, promoting liquidity in the market.

• Stable tax environment: With no changes to Business SALT for real estate professionals, sellers can continue to operate without worrying about new tax liabilities.

Overall, these tax changes reduce financial barriers and encourage investment, making it easier for both buyers and sellers to navigate the real estate market.

What’s Next?

While the first draft of the Tax Reform Bill is a promising start, it’s important to remember that this is just the beginning. The bill will likely undergo changes as it moves through the House and Senate, with many amendments still to come. However, the strong foundation laid by this draft—thanks in large part to advocacy efforts from organizations like the National Association of REALTORS®—sets a positive tone for the future.

As the bill progresses, we’ll continue to monitor its impact on housing affordability and the real estate economy. Stay informed and engaged as we advocate for policies that support home buyers, sellers, and a thriving real estate market.

Disclaimer: The information provided in this blog post is based on the first draft of the Tax Reform Bill released on May 12, 2025. As the legislative process continues, provisions may change. For the most up-to-date information, consult official sources or contact a tax professional.