Homeowners expecting a big tax cut from the tax reform proposals being considered in Washington may be in for an even bigger surprise.
According to the National Association of Realtors®, a proposal currently pending before the House of Representatives would offer little benefit to millions of middle class homeowners, while many would actually see a tax increase.
New limits on the mortgage interest deduction (MID) as well as state and local tax deductions are among the many reasons why, Realtors® say.
“After looking at this legislation, it’s not all that different from the tax reform blueprint presented by House Republicans last Spring,” said NAR President Elizabeth Mendenhall. “We support the notion of lower taxes, which this legislation promises, but not if offering them puts additional burdens on the backs of homeowners.
“If this legislation is passed, millions of middle class homeowners will experience both a tax increase and a loss in equity after home values drop as expected. That’s a combination that most middle class homeowners simply cannot afford, and they shouldn’t have to.”
NAR is opposed to the legislation for several reasons:
- It would cut the cap on the MID in half from $1 million to $500,000 for all new mortgages and it’s not indexed to inflation, meaning the value will further diminish with time. The bill also eliminates tens of thousands of dollars in state and local tax deductions, and caps the property tax deduction at $10,000. This is of particular concern in higher-cost states, but will be felt in all 50 states across the country.
- The bill also puts new limits on the Capital Gains Tax exemption for selling a primary residence. Currently, to qualify for the exemption, you only have to live in a primary residence for two of the previous five years. The new limit would increase that to five of the previous eight years, creating hardships for homeowners who may need to move in a shorter period of time.
- The bill would eliminate other tax benefits such as the MID on second homes, a moving expense deduction, student loan interest deduction and deductions for medical expenses – even for the elderly.
“This is all included in a bill that we’re being told is improving our current system,” Mendenhall said. “Not only is this legislation detrimental to current American homeowners, but it will negatively impact future generations of homeowners with roughly $1.5 trillion in new federal debt.”
A big part of the tax reform legislation is a corporate tax break, reducing tax burdens for companies from 35% to 20% and for companies investing money overseas to bring their money back into the United States at a one-time-only tax rate of 12% instead of 35%.
The concept here is it would create more jobs and increase wages, however there is no guarantee that is the case and instead could end up raise dividends and buy back shares for corporate investors – all while homeowners bear the burden of paying for those corporate tax cuts.
“NAR is urging everyone to contact their U.S. Representative and tell them that this tax legislation, as currently constructed, is not good for American homeowners,” Mendenhall said. “Nobody wants to be double-taxed on the money they pay for state and local taxes – and that would be the case in all 50 states.”
By Anthony SanFilippo