Tax reform took a major step as the House of Representatives approved a measure to overhaul the American tax code and the Senate took steps toward approval by the end of the month.
On Thursday, November 16th, the House passed a H.R. 1, “The Tax Cuts and Jobs Act” H.R. 1, the “Tax Cuts and Jobs Act,” a bill National Association of Realtors® President Elizabeth Mendenhall has called an all-out assault on homeownership.
NAR is strongly opposed to the tax reform legislation and believes the bill represents a tax increase on middle-class homeowners. This bill is a direct threat to consumers, to homeowners and to our businesses. Not only will millions of homeowners not benefit from the proposal, many will get a tax increase. Additionally, homeowners could lose substantial equity from the more than 10% drop in home values likely to result if the bill is enacted.
What the Legislation Does:
Lowers the Cap on Mortgage Interest Deduction. The bill lowers the cap on the mortgage interest deduction from $1 million to $500K for new mortgages. The cap applies to new mortgage debt (but not refinancing) incurred after November 2, 2017. Limit is not indexed to inflation causing its value to even further diminish over time. It does, however, maintain the current deduction of up to $1 million in mortgage debt for current homeowners.
Increases the Standard Deduction. The plan also nearly doubles the standard deduction, meaning fewer taxpayers would itemize and take the mortgage interest deduction. Currently, about 21 percent of filers take the mortgage deduction, but under the new framework only about 4 percent would, according to recent estimates from the Tax Policy Center.
Limits Exemption on Capital Gains Tax from the Sale of a Primary Residence. New rules would require homeowners to live in their home for 5 of 8 years before a sale to qualify for the exemption, versus just 2 of previous 5 years today. This will create a hardship to homeowners who move inside that five-year window. Exemption phases out for single filers with incomes over $250K ($500K for joint returns).
Eliminates State and Local Tax Deductions; Caps Local Property Tax Deduction. Eliminates the deduction for state and local income or sales taxes. Caps the deduction of local property taxes at $10,000. This will those in the highest property tax areas hard including the Washington D.C. area, New Jersey, New York and Connecticut and California.
Second Homes and Home Equity Lines of Credit. The bill eliminates the Mortgage Interest Deduction for second homes as well as the ability to deduct interest from home equity lines of credit.
Eliminates Other Important Deductions. Eliminates the deduction for moving expenses, deduction on interest on student loans and deduction for medical expenses, even for the elderly.
According to NAR, this legislation will not only have a severe impact on homeownership, it will cost future generations $1.5 trillion in new federal debt. The measure also puts homeownership tax incentives beyond the reach of more than 90% of American families. The homeownership rate in the United States still hovers around a 50-year low today. For many middle-class families, buying a home is the single largest investment they’ll ever make, and in fact, the average net worth of a homeowner is 45 times that of a renter. By eliminating or nullifying the incentive for homeownership, however, homeownership’s wealth-building potential could be pushed out of reach.
What Happens Next:
The Senate Finance Committee approved their version of the bill on Thursday, November 16th. Click here for details on the proposal and to download talking points click here. The bill next heads to the Senate floor, where the Senate is expected to take action sometime after the Thanksgiving break.
To compare the House and Senate proposals click here to load the chart click here
What Can You do to Help?
NAR opposition to the Senate proposal remains unchanged urges all members to contact their Member of Congress! Please respond to The Call for Action to let Congress know that you oppose the Tax Cuts and Jobs Act!