The One Big Beautiful Bill Act was passed by the U.S. House of Representatives in May to make sweeping changes to federal tax policy, and Senate leaders and administration officials are pushing Republican lawmakers to pass the bill so President Donald Trump can sign it into law before the July 4 holiday. Its centerpiece is making permanent the tax cuts that were passed in 2017 and set to expire at the end of this year. However, the bill also includes myriad provisions — some that could impact the housing market.
“There’s good and bad,” says Jeff Lichtenstein, founder of Echo Fine Properties in Palm Beach Gardens, Florida. “I think the short-term will be great.” The bill could provide a bigger tax break to some homeowners and spur housing developments, but he worries that it will increase the nation’s debt and might affect long-term affordability for lower- and middle-income families.
“Right now, we have outpriced Americans in this country,” says George Carrillo, co-founder and CEO of the Hispanic Construction Council. He, too, sees pluses and minuses in the bill but notes that it is hard to anticipate what will make it into the final version. “The narrative changes so quickly on a daily basis.”
However, as passed by the House, the One Big Beautiful Bill Act could mean the following for homeowners and the housing market:
— Wealthy homeowners could get a bigger tax deduction.
— Energy-efficient updates could be eliminated.
— Bonding changes could open the door to new developers.
— Incentive programs may spur affordable housing.
— Consumers could have less cash to spend on a home.
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Wealthy Homeowners Could Get a Bigger Tax Deduction
Everyone seems to agree: The wealthy are likely to be winners in whatever is ultimately included in the One Big Beautiful Bill Act.
“It’s going to mostly affect higher-income homeowners,” says Casey Gaddy, senior real estate agent with The Gaddy Group, a firm that serves the greater Philadelphia area.
Not only will they benefit from making permanent the lower tax brackets of the 2017 Tax Cuts and Jobs Act, but they may also be in line for a larger deduction for their property taxes.
Currently, there is a $10,000 cap on the amount of state and local taxes that can be included in itemized deductions on federal tax returns. The House version of the One Big Beautiful Bill Act would increase that deduction to $40,000 for those with annual incomes of up to $500,000.
Known as the SALT deduction, this increase isn’t likely to influence housing decisions for many people, but “we might see more movement in the luxury market,” Gaddy says.
However, it remains to be seen if the $40,000 cap will be in the final version of the bill. A Senate draft proposal unveiled on June 16 would keep the SALT deduction at $10,000. That prompted a quick backlash with some congressional members saying they would not vote for the final version of the bill if it did not include a larger SALT deduction.
Energy-Efficient Credits Could Be Eliminated
While homeowners may see their SALT deduction increase, they could lose tax credits for energy-efficient improvements made to their properties.
The Inflation Reduction Act of 2022 included a number of energy-related credits, including ones for homeowners who install energy-efficient updates to their home or install clean energy systems such as those that generate solar, wind or geothermal power.
Both the House version and draft Senate proposal of the One Big Beautiful Bill Act eliminate these credits, although on different timelines.
That could be problematic, according to Carillo. Although supportive of fossil fuels, he adds: “We need to have a well-balanced approach to energy.” As consumers grapple with spiking energy costs, he worries that discouraging renewable energy updates could cost homeowners more in the long run.
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Bonding Changes Could Open the Door to New Developers
One positive from Carrillo’s perspective is the possibility that the bill will loosen the bonding requirements for public housing projects. Current bond requirements mean that a developer needs to have sufficient liquid assets to cover the project’s costs, according to Carrillo.
For instance, to build a 40-unit public housing project at a cost of $24 million, a developer would need to have $24 million in liquid assets to qualify for bonding. These bonding requirements only apply to public projects, not private ones, Carrillo says.
Changing the bonding requirements could open the door for more developers to take on this type of work and help expand affordable housing options.
Incentive Programs May Spur Affordable Housing
The One Big Beautiful Bill Act could also encourage the development of affordable housing through opportunity zones, a low-income housing tax credit and a new markets tax credit. These all encourage investments in designated areas.
“The revised opportunity zone rules will offer a powerful incentive to direct investment dollars where it’s most needed, potentially leading to substantial increases in affordable housing options in the most underserved communities,” wrote Peter Ciganik, partner and head of capital markets at real estate investor GTIS Partners, in an email.
The zones offer tax incentives for qualified projects, and Ciganik points to an analysis from the Economic Innovation Group that shows the success of opportunity zones. According to the research organization, the zones have resulted in an additional 350,000 housing units being created in designated areas since 2019.
“I see it as a good thing for the market, but on the other side of it, we have to be careful that we’re not gentrifying an area and pushing residents out,” Carrillo says.
Both the House bill and draft Senate proposal include opportunity zones, although the House included a 2033 end date. Still, “it’s clear that opportunity zones are a priority for the administration and will continue to grow as a source of growth capital for underserved communities,” according to Ciganik.
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Consumers Could Have Less Cash to Spend on a Home
It’s possible that the biggest impact the legislation has on housing won’t be found in a specific provision of the One Big Beautiful Bill Act.
“The biggest worry that I have is the spending on it could cause some inflation,” Lichtenstein says. He is concerned that could push up interest rates which will, in turn, affect affordability. “Right now, all I hear (about) is affordability,” he says.
The Congressional Budget Office estimates that the House version of the bill could increase federal deficits by $2.4 trillion over a 10-year period. The legislation also includes reductions in spending for programs such as food assistance and Medicaid. If households need to spend more on food and health care, that means less cash available to pay for housing or save for a future home purchase.
The One Big Beautiful Bill Act must be passed by the Senate and then differences between the House and Senate versions must be addressed before the legislation can be sent to President Trump for his signature.
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How the One Big Beautiful Bill Act Could Affect Housing originally appeared on usnews.com
