Yuri Gripas / Pool via CNP / SplashNews.com / Yuri Gripas / Pool via CNP / SplashNews.com
President Donald Trump’s second term is a little more than a month underway, but it feels like it’s been longer. The president has been taking swift action on numerous fronts, which has generated strong praise and sharp criticism.
One of Trump’s goals is to eliminate income taxes, and he’s said it plenty of times during the campaign trail and in the first month of his second term. His objective of eliminating income taxes will have a significant impact on Americans and the global economy.
Those tax cuts can also be good for people who want to buy homes. Here’s how the axing of income taxes can boost your buying power.
The elimination of income taxes will increase every American’s take-home pay. The higher tax-home pay will make it easier to save for a down payment and manage other expenses.
The government will have to offset income taxes with another revenue source, and Trump seems committed to using tariffs. While tariffs increase the prices of products and services, consumers could have more flexibility with this tax.
While necessities still have to be purchased, consumers can reduce their taxes by making fewer non-essential purchases. A tax system built on tariffs can offer more flexibility than income taxes and help savvy home buyers grow their savings.
If you get to keep more of the money you earn, it becomes easier to pay off your current financial obligations.
Making more progress on credit card debt and student loans will reduce your debt-to-income ratio. Mortgage lenders check this metric before deciding whether to accept or reject your loan application.
Getting rid of these financial obligations will also boost how much you keep at the end of each month. Boosting this number can make it easier to afford higher monthly mortgage payments, allowing you to buy a better home in the process.
Homeowners should be aware of the potential risk of inflation. However, if the Department of Government Efficiency (DOGE) makes meaningful cuts in government spending, it can keep inflation under control while simultaneously lowering interest rates since fewer government bonds will be issued.
Trump’s decision to eliminate income taxes will reduce the monthly burden of owning a home. Having more money will lead to a higher purchasing power, and if inflation simultaneously remains stable, it will make the enhanced purchasing power sustainable.
Having fewer stresses about keeping up with monthly payments can make home buyers feel more comfortable with embarking on the key milestone of homeownership. It can also make other financial obligations feel more manageable.
The elimination of income taxes can eliminate real estate deductions, and that’s a huge deal for people who want to buy homes. Tax deductions have only been around since 1913 when income taxes were introduced at a large scale.
While people can claim tax deductions through various expenses, none of them are as potent as real estate. The ability to generate high profits while reporting paper losses has made real estate — including single-family homes — very attractive investments. Ending income taxes can also end tax deductions, and that scenario can make real estate investing less desirable.
DOGE leader Elon Musk has called for the elimination of all tax credits, and that will likely rub off on tax deductions if income taxes are eliminated. He has mentioned the tax code shouldn’t be so complex.
As the current tax code stands, it’s possible for someone who nets $1 million per year to earn a tax refund with real estate. All it takes is to buy a $2 million short-term rental property and use a cost segregation study to immediately depreciate the property by 60%. Then, they report a $1.2 million paper loss on the property, which translates into a $200,000 income loss.
Instead of paying taxes on $1 million, the investor in this scenario reports a $200,000 income loss and receives an “appropriate” tax refund. This scenario highlights one of the reasons why real estate investing is so desirable. If deductions are eliminated, fewer investors may gobble up single-family homes.
No more income taxes can cause single-family housing prices to remain steady or even drop since critical investor incentives wouldn’t be available anymore.
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
