President Donald Trump’s remarks at the World Economic Forum in Davos, Switzerland, included an offhand comment with an apparent new idea: extending the depreciation tax deduction to homeowners.
“You know, the crazy thing is a person can’t get depreciation on a house but when a corporation buys it, they get depreciation,” Trump said in his 90-minute speech. “OK, here’s something we’re going to have to think about, I don’t know if too many people think about it.”
He didn’t elaborate on how serious a discussion it was, or what path he might take to enact the idea. Other plans have come via executive order.
How it works
Depreciation is an annual tax deduction that lets property owners account for the natural wear and tear over time.
And it’s an option even if the property’s market value increases. The IRS lets taxpayers use a few different accounting methods based on their circumstances, which could impact the exact claim.
The tax code now lets businesses and owners of income-producing properties claim depreciation. But it isn’t allowed for personal residences, except under some circumstances involving business use.
The tax deduction is calculated based on the property’s basis—including its purchase price and when it was placed into service, excluding the land value.
This lets property owners recoup their costs over multiple years. The code now assumes residential rental properties have a useful life of 27.5 years.
National Association of Realtors® Chief Advocacy Officer Shannon McGahn said tax benefits of homeownership have eroded over time.
“The capital gains exclusion for the sale of a primary residence hasn’t been updated since 1997 and, after inflation and home price appreciation, is now worth about half of what Congress intended,” McGahn said. “Any effort to strengthen homeownership through the tax code helps bolster the middle class, ease housing affordability pressures, and grow the broader economy. “
The Trump administration is floating several ideas to make housing more affordable.
At the speech, Trump also explained an executive order aimed at restricting large institutional investors from buying single-family homes.
An official last week said he also has a plan for Americans to pull from their 401(k) retirement plans for a down payment.
The point, Trump said, was to make it easier for people to buy a new home without decreasing home values.