What Homebuyers Need from the 2025 Tax Bill
By Morgan Wise, Chief Financial Officer at Atlantic Bay Mortgage Group
The expiration of key provisions in the Tax Cuts and Jobs Act (TCJA) at the end of 2025 comes at a critical time for the housing market. We’ve seen how the affordable housing crisis and rising costs are keeping this dream out of reach for too many. The U.S. faces a deficit of 1.5 million homes, and construction costs have skyrocketed, with labor and material expenses jumping 31% since 2020.
According to Fannie Mae, returning to 2016-2019 affordability levels would require a 38% drop in median home prices, a 60% increase in median household income, or mortgage rates falling to 2.35%. As a mortgage industry veteran, I know that none of these scenarios are realistic in today’s environment.
Congress has a critical opportunity to address these challenges. Thoughtful tax reforms can ease burdens on homebuyers, stabilize the housing market, and make homeownership more attainable for millions.
Increase Housing Supply
Raise the State and Local Tax (SALT) cap – The current $10,000 SALT deduction cap disproportionately affects homeowners in high-cost-of-living states such as California, New York, and New Jersey. Raising the cap to $20,000 or higher would relieve tax burdens on millions of middle-income families, helping them offset high property taxes and the cost of living.
Restore Portions of Mortgage Interest Deduction (MID) – Before the TCJA, homeowners could deduct interest on mortgages up to $1 million. Reducing the cap to $750,000 diminished this critical incentive. Restoring the previous limit would provide financial relief, particularly in markets with high home prices, and encourage more families to invest in homeownership.
Expand Affordable Housing Tax Credits – Housing inventory remains critically low in America, and expanding programs like the Low-Income Housing Tax Credit (LIHTC), which provides a tax incentive to construct or rehabilitate affordable help in creating affordable housing units for low- and moderate-income families.
Extend Expiring Tax Provisions
Preserve Section 1031 Exchanges – Section 1031 exchanges allow real estate investors to reinvest profits without triggering immediate tax burdens, driving housing production and liquidity. These exchanges facilitated $3.4 billion in real estate transactions in 2022. Eliminating or limiting this provision would slow investments, exacerbating housing shortages.
Make the 20% Qualified Business Income Deduction (QBI) Permanent – The QBI deduction supports small businesses, including mortgage brokers, builders, and real estate agents, all which are critical to housing development. Making this deduction permanent would help stabilize these industries and promote housing growth.
Encourage Local and State Policies
Tie Federal Policy to Local Housing Initiatives – Zoning restrictions have driven up housing costs in major cities, with land-use regulations adding an average of $94,000 to the price of a single-family home. Federal tax incentives tied to state and local reform could help reduce these costs and increase housing supply.
Pass the Neighborhood Homes Investment Act – This legislation would support the construction on rehabilitation of single-family homes in low-to-moderate-income neighborhoods. Supporting this act would boost supply in areas that are often overlooked by traditional developers.
The numbers tell a clear story: the housing market is at a tipping point. Without action, affordability will continue to deteriorate, locking millions of Americans out of homeownership. The 2025 tax bill is a chance for Congress to implement policies that directly increase supply, reduce costs for buyers, and stabilize the housing market.
By raising the SALT cap, restoring the MID, preserving 1031 exchanges, and expanding affordable housing incentives, lawmakers can create meaningful relief for homebuyers while driving economic growth. The time to act is now. Homeownership has always been a cornerstone of the American Dream, and it’s up to Congress to ensure that dream remains attainable for future generations.