REALTORS® Oppose Tax Reform Proposal
The comprehensive tax reform discussion draft that U.S. House Ways & Means Committee Chairman Dave Camp, R-Mich., released earlier this month envisions a very different picture for home owners than what’s in place today. In a statement about the plan, NAR President Steve Brown says the association is concerned with many of the proposals.
“We are extremely disappointed with several of the provisions contained in U.S. House Ways and Means Chairman Dave Camp’s tax reform, namely proposed limits on the mortgage interest deduction and capital gains, and the repeal of deductions for state and local property taxes. These proposed changes to the taxation of real estate will impact every single American, either directly or indirectly”.
Under the plan, today's seven tax brackets — which range from 10 percent to 39.6 percent — would be reduced to three: 10, 25, and 35 percent.
Perhaps the most significant change for home owners would be the repeal of the deduction for state and local taxes paid. Under the plan, no amount of property tax would be deductible. This would also have the effect of taking away the mortgage interest deduction (MID) for millions of home owners who currently claim it because their total itemized deductions would fall below the newly-increased standard deduction threshold.
Also for homeowners, the maximum mortgage amount eligible for the MID would be reduced from today's $1 million to $500,000 over four years, starting in 2015. The maximum mortgage amount would be $875,000 in 2015, $750,000 in 2016, $625,000 in 2017, and $500,000 thereafter. Mortgages in place in 2014 and earlier would be grandfathered in under today’s $1 million maximum. Also, interest on home equity loans would no longer be deductible.
Americans selling their homes would also be affected by changes to the exclusion of gain from the sale of a principal residence. Instead of being eligible for the exclusion by owning and living in a home for two of the past five years, the proposal would increase this to five of the past eight years. It would also phase out the benefit of the exclusion for higher-income taxpayers.
Other changes would negatively affect commercial and investment real estate. The like-kind exchange provision, which allows a gain to be deferred on certain real estate transactions would be repealed. Depreciation schedules for real property would also be lengthened, and the tax rate on gain from previously taken depreciation would be increased.