How the New Tax Law Will Decrease Home Ownership and Have a Negative Effect on Children

The Tax Cuts and Jobs Act that went into effect at the beginning of 2018 has cut back significantly on federal tax support for home ownership. This will no doubt result in fewer people owning homes. Many tax changes have unintended results, and this cut will adversely affect children even though there has been little discussion about it. Let’s look at how the law regarding federal taxes and home owners has changed, and why children may suffer unintended and long-term effects due to these modifications.

Changes in the Tax Law that Adversely Affect Home Ownership

  The American dream of a comfortable house in which to raise one’s family has become increasingly out of reach for Americans over the last 20 years. The Tax Cuts and Jobs Act has pushed that dream even further out of reach. The home mortgage interest deduction has been a reliable support for home ownership since 1913 and one of the biggest deductions many taxpayers take on their taxes. Congress has not done away with this deduction, but they have limited it.
  • Before the new tax law was passed, homeowners could deduct up to $1 million in mortgage debt. That has been reduced 25% to $750,000.
  • A second homes doesn’t qualify for a mortgage deduction at all if the deduction on the first home is over $750,000.
  • The deduction for home equity debt has been eradicated.
  • The increase in the standard deduction makes it less likely that taxpayers will itemize, and they can only take the mortgage interest deduction if they itemize. The new tax law doubled the standard deduction from $6,350 to $12,000 in 2018 for single filers and from $12,700 to $24,000 for married couples under 65 filing jointly, making the standard deduction much more attractive to many. This is particularly true since the new tax law also limits a lot of deductions or throws them out completely.
  • Before the new tax law went into effect, homeowners had a limitless deduction on state and local taxes including real property taxes. That is now limited to $10,000 per year.
Whenever it becomes more expensive to do something because of decreased tax deductions, it’s going to negatively affect that action. For example, changes in the tax law that decreased the number of people taking itemized deductions have significantly reduced charitable giving.  The Council on Foundations estimates that under the new TCJA, charitable donations will decline by $16 billion to $24 billion per year. Similarly, changes in mortgage deductions and other aspects of the new tax law are expected to decrease the number of people buying homes.

How Home Ownership Affects Children

  When the new tax sections that apply to home mortgages were passed, children were barely considered. Yet, studies and substantial evidence show that when people own homes, their children benefit. Whether or not their parents own homes can have a lasting impact on children for their entire lives.

Home Ownership Affects Educational Outcomes

  • A Harvard study shows that children of homeowners get math scores that are up to 9% higher than children of non-homeowners. The homeowner children also get reading scores of up to 7% higher.
  • Children of homeowners are also much more likely to stay in school and attain a higher education level.

Homeowner’s Children Do Better Socially

  • A Harvard study shows that children of homeowners are more likely to have a better home environment than those with parents who do not own homes. This is true 13% to 23% of the time.
  • Children of homeowners are less likely to become pregnant as teenagers than are children of renters.

Homeowner’s Children Are More Successful Throughout Their Lives

  • Homeowner’s children are likely to make a lot more money than children of non-homeowners.
  • Homeowners’ children are more likely to own a home once they become adults.

Why Home Ownership Affects Children

There are a lot of reasons that home ownership has such a positive impact on the children of homeowners. Studies show that some of these reasons are as follows:
  • Children of homeowners enjoy more stability and less likelihood of being subjected to residential moves.
  • Homeowners overall have a higher adjusted net worth than renters, so they are under less financial stress. The appreciation of homes is a substantial benefit to their owners. Relative freedom from financial stress may be one reason that homeowners overall exhibit more engaged parenting behaviors than renters.
  • Children of homeowners learn firsthand the responsibility needed to own and maintain a home from their parents.
  • Homeowners are more likely to live in neighborhoods that offer children a larger variety of activities and opportunities.


Many laws have unintended consequences  Lawmakers would do well to remember that laws affecting housing have a big impact on children and, therefore, the future of our country. When determining tax laws that affect housing, lawmakers should keep the impact on children at the forefront of their minds.