Will The New Tax Bill Help Housing In The US?

The recently passed tax bill includes several provisions that encourage home building, particularly for affordable housing and general construction businesses. Here are key provisions that could encourage Home Building:

* Low-Income Housing Tax Credit (LIHTC): The bill includes key provisions from the LIHTC Improvement Act on a permanent basis that support affordable housing development by increasing the state credit allocation and lowering the 4% bond test to 25%, expanding resources in bond-constrained states.

* Restoration of 100% Bonus Depreciation: Businesses can immediately expense qualifying assets placed in service after January 19, 2025 and is expected to drive capital investment across industries, including construction firms, encouraging them to invest in new equipment and technologies.

* Expansion of Section 460(e) Completed Contract Rules: expanded rules include condos in addition to single-family homes allowing home builders to avoid being taxed on deposits from buyers during construction and instead be taxed when the home is sold, a more favorable tax accounting for condominium builders.

* Workforce Development: A new Workforce Pell grant program prepares students for high-demand jobs, including those in residential construction to help address potential labor shortages in the industry. This may help offset deportations of skilled undocumented labor.

* Timber Production: Boosting domestic timber production from federal lands to address the lumber supply shortage that necessitates costly imports now with increased tariffs.

* Permanent Extension of Lower Individual Tax Rates may aid some taxpayers and improve affordability for prospective homebuyers.

* Enhanced and Permanent Qualified Business Income Deduction (Section 199A) solidifies the deduction providing certainty for pass-through businesses, allowing contractors to reinvest in their operations.

* Strengthened Opportunity Zones: Renewed incentives promote targeted investment, including in rural areas, potentially boosting housing development in underserved communities.

* Middle-Class Deductions: New deductions for overtime pay, car loan interest, and tips could ease the tax burden on working families and potentially improve housing affordability.....if the cost of tariffs does not eat up these savings.

* Permanent Estate and Gift Tax Threshold: Prevents a sharp drop in exemption levels, supporting the transfer of family-owned construction businesses to the next generation. This will also continue to fuel the $100 trillion-plus transfer of generational wealth that has been a big contributor to home buying.

The bill eliminates some homeowner credits related to energy efficiency:

* The $2,500 tax credit for energy-efficient homes, eliminated after December 31, 2025.

* The 30% tax credit for residential clean energy expenditures, eliminated after December 31, 2025.

* The 30% tax credit for clean power technology, eliminated for projects starting construction more than 60 days after the bill is signed into law.

The mix of provisions in this bill could encourage home building, particularly for affordable housing, through incentives for businesses, investors, and workers. What will be the impact of removing some energy efficiency-related credits that previously supported sustainable building practices? Will the tax savings offset the new costs of higher trade tariffs on goods? Could the biggest tax savings for wealthier Americans further fuel LUXE-flation and drive up the cost of luxury products....including homes? We will find out....

Possibly the most important aspect of this bill will be whether the increased spending that fuels deficits and debt devalues US bonds: if interest rates are the most important aspect to housing, and if bonds have to pay higher yields, those mortgage rates won't come down......that is what we should watch closest....