The Trump administration is moving forward with its plan to slash taxes on businesses, which means the government will have to get at least some of that money from elsewhere. Now comes news that taxpayers may have to choose between two common tax deductions that millions of Americans have long benefited from.

Currently, U.S. taxpayers are allowed to make deductions based on what they pay in interest on their mortgage and on the taxes paid to state and local governments. Both of these deductions have, at various times, been targeted as part of tax reform but they have survived thus far.

The current $6 trillion Trump tax plan, which doesn’t say much about how the government intends to balance out its proposed reductions to corporate and pass-through business taxes, currently intends to get rid of the state/local tax deduction while retaining the mortgage deduction. In fact, the only personal deductions that are explicitly mentioned in the proposal are the mortgage interest deduction and the deduction for charitable donations.

While eliminating the state/local tax deduction could reportedly save the government more than $1 trillion over ten years,
it has its detractors who say that their states would be unfairly affected by the loss of this deduction. Still others argue that a better target for removal or restructuring is the mortgage interest deduction.

Now, the AP reports that Republicans in Congress may (nothing is definite until it’s actually on paper) suggest a compromise: Let taxpayers pick the deduction they want to take.

At the same time, selecting which deduction to take may be a moot question for some taxpayers, as the administration is currently proposing to double the standard deduction, meaning that amount may save you more than either the mortgage or local tax deductions would.

Who Opposes Cutting State/Local Tax Deduction?

The size of this deduction going to be directly related to how much you pay in local and state taxes (which is also related to how much you earn and — for local property takes — how much your home is worth), so folks who live in places with both high levels of income and high income and property tax rates are currently reaping the largest benefit and are most likely to want this deduction protected.

As the AP notes, many of the states with both high income levels and high tax rates are traditionally “blue” or Democratic-leaning states. At the same time, these states also have their fair share of Republican congressional representatives. For example, 14 of California’s 53 representatives (about 1-in-4) are Republican, while a full one-third of New York’s 27 representatives are from the GOP, as are nearly half of New Jersey’s 12 House seats.

Those lawmakers may have trouble selling their more well-heeled constituents on getting rid of this particular tax deduction. At the same time, the GOP can’t afford to lose too many votes on a reform that the party has been promising for years. There are currently 20 Republican lawmakers who have joined a bipartisan coalition opposing the removal of the state/local tax deduction. That’s too large a group for party leadership to brush off.

Who Opposes Cutting The Mortgage Interest Deduction?

There are currently around 30 million American homeowners who take this deduction their federal income tax return, and most of them would probably not be happy seeing it go away.

Cutting the mortgage interest deduction has the most effect on recent homebuyers. Not only are the first few years of many mortgage repayment plans arranged so that much of what the homeowner pays goes toward interest, but these are also people who likely had to make significant cash outlays for the mortgage down-payment, moving, new furnishings, and possibly remodeling.

The various lobbying groups, particularly construction and real estate, whose members rely on a steady demand for new housing have helped to defeat previous efforts to get rid of the mortgage interest deduction. They argue that taking away this deduction, which can be worth several thousands of dollars for some homeowners, would remove some of the incentive to purchase a home.

It’s possible, notes the AP, that the mortgage interest deduction might remain, but that it would be capped to reduce the size of the deduction. Currently, homeowners are allowed to deduct mortgage interest that applies on up to $1 million of their home’s value. By lowering that cap, homeowners with low-to-moderately priced homes would still likely enjoy the full benefit of the deduction while cutting down on deductions for those with more expensive property.

Doubled Standard Deduction

The current tax proposal would nearly double the current standard deductions, raising them to $12,000 for individuals (up from the most recent level of $6,350) and $24,000 (up from $12,700) for married couples filing jointly.

Homeowners whose mortgage interest and other itemized deductions don’t reach those new standard thresholds would likely just end up taking the standard deduction.

But as the Washington Post points out, a study backed by the National Association of Realtors found that lowering the number of people who claim the mortgage interest deduction (even if they’re effectively getting the same size deduction elsewhere on their taxes) could have a negative effect on the investment value of real estate and cause home prices to drop by as much as 10%. Other studies, not paid for by the realty industry, have reached similar conclusions, says the Post.

Want more consumer news? Visit our parent organization, Consumer Reports, for the latest on scams, recalls, and other consumer issues.