WASHINGTON—An influential home builders group will oppose the House Republicans’ forthcoming tax bill, in a blow to the party’s attempt to forge unity among business sectors.

The National Association of Home Builders, which had expressed openness to changes in the mortgage interest deduction, decided it couldn’t back the GOP bill. The association’s leaders made the decision after top Republicans this weekend said they wouldn’t accept an idea home builders and lawmakers had been working on: repealing the deductions for mortgage interest and property taxes and replacing them with a new tax credit.

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Instead, the bill will retain an itemized deduction for property taxes, the House Ways and Means Committee said late Saturday. That is a concession to lawmakers from high-tax states such as New York and New Jersey.

“It’s a bad bill for the housing sector,” Jerry Howard, CEO of the builders group, said in an interview on Saturday. “We will not be for it.”

House Republicans plan to release their tax bill on Wednesday. The tax legislation is the centerpiece of the GOP’s economic and political agenda, and many details have been closely guarded as lawmakers try to build a coalition to push it through the House before Thanksgiving.

The plan nearly doubles the standard deduction, ends personal exemptions and likely repeals the deductions for state and local income and sales taxes. The combination would remove much of the incentive for the mortgage-interest deduction outside the highest-cost areas and could potentially hurt home prices.


Republicans had been talking about replacing those breaks with a tax credit for all but the highest-income households. Such a credit have included property taxes and interest and replace the remnants of the mortgage-interest deduction.

The sacred cows of the tax code—including breaks for home mortgage interest and state and local taxes—are being challenged. WSJ's Richard Rubin explains.... with real cows. Photo/Illustration: Heather Seidel/The Wall Street Journal

According to estimates from the Tax Policy Center—which includes assumptions about blanks left in the House GOP plan—the current Republican framework would leave 4% of taxpayers claiming the mortgage-interest deduction, down from 21% today.

The itemized deduction for property taxes announced on Saturday by the Ways and Means Committee could help accommodate Republicans from New York and New Jersey who had opposed full repeal of the state and local tax deductions. Eleven of the 20 Republicans who voted against the House’s budget on Thursday were from those two states.

It wasn’t clear late Saturday whether that deduction for property taxes would be limited either by amount or by household income. As an itemized deduction, it would generally be available only to taxpayers whose combined deductions exceed the standard deduction, which would be $12,000 for individuals and $24,000 for married couples.


“Some of these districts, the local taxes are staggering,” Ways and Means Chairman Kevin Brady (R., Texas) said in an interview Friday, as he talked about conversations with fellow House members. “I mean, beyond the pale, and I don’t know how families frankly survive with that tax burden. So we want to make sure we’re writing and solving to help them.”

Republicans had long said that they wanted to keep the mortgage-interest deduction. The break is popular with voters, despite research showing little affect on homeownership rates and a disproportionate benefit for high-income households.

Mr. Howard said Saturday he had been working with House Ways and Means Committee staff on a credit to replace the mortgage-interest and property-tax deductions, and he said he had been optimistic throughout the week. A credit could have directed the tax code’s subsidy for homeowners more broadly across income groups, but it would have been more disruptive politically than leaving the mortgage-interest deduction alone.

According to the home builders, negotiations were ongoing with one version of the credit worth 12% of property taxes and mortgage interest.


Eligible taxes would have been capped at $5,500, indexed for inflation. Eligible mortgage debt would have been capped at $500,000, also indexed for inflation. There would have been a phaseout for higher-income taxpayers.

But Mr. Howard got a call from Mr. Brady on Friday night and from House Speaker Paul Ryan (R., Wis.) on Saturday.

According to Mr. Howard, Mr. Ryan said the idea hadn’t gotten enough discussion among rank-and-file lawmakers.

A spokeswoman for Mr. Ryan declined to comment Saturday.


Mr. Brady, in a statement Saturday, said the issue would remain under discussion. He announced the retention of the itemized deduction for property in a later statement.

“The home builders have been great partners in developing a new home credit that helps more Americans with both their mortgage and property taxes, by expanding this tax relief to homeowners who don’t itemize,” Mr. Brady said. “I hope members of Congress will examine it closely to determine if they want it included before tax reform heads to the president’s desk.”

Many business groups are backing the Republican tax framework on the promise of lower tax rates for corporations and other businesses, but that could change as the details are unveiled. The home builders, along with the National Association of Realtors, are a powerful lobbying force, with members spread throughout the country and a significant stake in changes to homeownership incentives currently in the tax code.

Mr. Howard said his group’s members urged him to fight the bill even more aggressively than he had been prepared to support it.

Write to Richard Rubin at richard.rubin@wsj.com