Using county-level house price information and IRS tax data, we find that capping the federal tax deduction of real estate taxes at $10,000 has caused the growth rate of home values to decline by an annualized 0.8 percentage point, or 15 percent, in areas where real estate taxes as shares of taxable income exceeded the national median. Additionally, these areas with a high real estate tax burden suffered from reductions in market liquidity after the reform. Fewer houses were transacted either in absolute numbers or as shares of total listings, houses stayed on the market longer before being sold, and more houses were listed with price cuts. Importantly, we find that the housing market slowdown was accompanied by declines in local construction employment growth as well as multi-family building permits. Furthermore, on net more people moved out of these areas after the reform. Finally, we show that the act has already had political consequences. In the 2018 midterm Senate elections, more voters voted for Democratic candidates in areas with high real estate tax burden than for Republican candidates.