Congress Weighs Eliminations of Real Estate Tax Breaks For Large Investors—Will Small Investors Get Caught in the Crossfire?

In This Article

Investors with a sizable portfolio of single-family homes have been getting it from all sides recently. A new bill is adding yet more fuel to the fire.

Legislation targeting single-family investors comes from a coalition of Senate Democrats led by Massachusetts Senator Elizabeth Warren, including Oregon Senator Jeff Merkley, Delaware Senator Chris Coons, and 15 other Democratic senators. The group aims to end key deductions for corporate entities that buy up more than 50 single-family homes for rent through their bill, The American Homeownership Act.

In a different and bipartisan measure, the Homes for American Families Act, co-sponsored by Republican Senator Josh Hawley and Democratic Senator Jeff Merkley (who is also involved in the Democratic bill), follows a similar theme but aims the bar higher, amending the Sherman Antitrust Act to make it illegal for investment funds with more than $150 million in assets to buy single-family homes, condos, or townhouses, with enforcement handled by the Justice Department’s antitrust division.

“Families deserve to be able to buy their own homes and achieve the American dream without competing with big investment companies that irrevocably drive up housing prices,” Hawley, a Missouri Republican, said in a statement. “That’s why I am introducing legislation to ban Wall Street from buying single-family homes once and for all.”

Could Mom-and-Pop Investors Be Affected?

While the Homes for American Families Act firmly targets real estate heavy hitters through its $150 million in assets threshold, the American Homeownership Act’s target of companies that buy more than 50 single-family homes for rent could infringe upon mom-and-pop investors who have been accruing their portfolios over the years, often buying fixer-uppers in less expensive areas in clusters when deals became available, particularly after the financial crash.

Senate Democrats’ bill appeared to back away from language that seemed to affect mom-and-pop landlords, allowing investors who buy dilapidated homes to claim tax deductions for rehabbing those properties. However, it does not appear to apply retroactively. For landlords who have long held a portfolio of 50 units or more, whether they were once fixer-uppers or not, the 50-unit threshold still holds, according to Realtor.com and others.

CNBC’s description of the Warren-Merkley proposal says the legislation would prevent companies with more than 50 single-family rental properties from taking deductions for depreciation of housing value and mortgage interest payments. Corporations also would not be able to get federally backed mortgages. The bill would also bar Wall Street investors from buying foreclosed homes sold by a federal housing agency, the New York Times reported.

“Today, Democrats are introducing legislation to stop Wall Street from snapping up homes in bulk and jacking up rent for families,” Senator Warren said in a statement. “This bill will take on predatory landlords while making investments to increase housing supply and boost homeownership for Americans.”

The Trump Administration’s Take

The Trump administration first brought corporate single-family homeownership into the spotlight with its proposal banning investors who own more than 100 single-family homes from buying any new ones. Trump’s proposal includes exceptions for companies that increase the number of single-family homes.

This appears to have been amended more recently, according to the Washington Post, with new legislation unveiled on March 2 that includes incentives to build new housing and grants to renovate older housing. Also, the ban on large investors has been expanded to include those owning 350 single-family houses, at President Trump’s request.

The new legislation was spearheaded by Senate Banking Committee Chairman Tim Scott (R-South Carolina) and Senator Elizabeth Warren. The new legislation has been dubbed the 21st Century ROAD to Housing Act. It still needs enough House members to support the plan for it to pass.

Corporate Ownership Is Higher in Sunbelt States

The deluge of bills addressing single-family-home corporate ownership comes as high housing costs have made homeownership difficult for many Americans. Homebuyers need to earn 43% more than the median worker to be able to afford a typical home, according to Federal Reserve data.

Although nationally, large institutional investors only own 3.8% of all single-family rentals, the numbers vary across the U.S. In Sunbelt cities like Atlanta, for example, according to a 2023 Urban Institute analysis, large investors owned about 28.6% of such homes. That number was 20% in Charlotte and 9% in Houston.

“It would make a significant difference in these places, where it’s an outsized issue,” Colin Allen, executive director of the American Property Owners’ Alliance, a homeowners’ advocacy group, told CBS News. “But they own a small share of homes overall.”

The rhetoric from those proposing bills, from both sides of the aisle, barely differs. With midterm elections coming up, this is clearly an issue that all sides want to address.

“Now with bipartisan support, we have wind in our sails to finally crack down on billionaire corporations gobbling up American homes,” Merkley said in a joint statement. 

You might also like

Supply Is the Root Issue

Pricing wouldn’t be so prohibitive if there were more houses. The supply-and-demand issue is complex and involves land and construction costs, zoning, and possibly immigration and tariffs.

“We have to build more homes and look at policies that allow us to expand supply,” Allen told CBS News.

Edward Pinto, co-director of the AEI Housing Center at the American Enterprise Institute, a nonpartisan think tank, is unconvinced about how much impact curbing large investors’ purchases of single-family homes will have on the ground, making homeownership more affordable for American families.

It “is not going to have much of an impact—if any—on making homes more affordable,” Pinto told CBS News. “It just gives the impression of doing something positive, and so it may have some attractiveness on both sides of the aisle, but it’s not going to solve any problems.”

Final Thoughts

With so many competing bills in the race, it’s unclear which one will cross the finish line. One bill might pass that combines proposals. Given Trump’s position, it seems likely that his bill with a 350-single-family-home threshold stands a good chance of passing.

However, should the other Warren-led bill be approved, and you are an investor with around 50 units, the workaround is quite simple—1031 exchange some of those for two-to-four-unit homes, as small multifamily properties are not under discussion in any of these bills. 

Equally, if you are an investor looking to aggressively scale your portfolio, sticking to small multifamilies will keep you out of the spotlight while you enjoy all the tax breaks that come with real estate investing.