Realtors, Builders Rip GOP Tax Reform Plan That Modifies Mortgage Interest Deduction
John Jordan | November 2017
WASHINGTON—While President Donald Trump described it as a “great Christmas present,” to American taxpayers, real estate executives view the proposed tax reform proposal rolled out by the House Ways and Means Committee today as anything but a gift.
Among some of the key provisions in the proposal that would impact the real estate industry are: cutting the Mortgage Interest Deduction in half and capping it at $500,000 for new home buyers. The Tax Cuts and Jobs Act caps the property tax deduction at $10,000 and does away with state and local income tax deductions altogether. The plan also doubles the standard deduction, which would also adversely impact the Mortgage Interest Deduction. These provisions are seen by many real estate and government officials as very damaging to high cost states such as New York and other highly populated states on the east and west coasts.
The National Association of Realtors and the Hudson Gateway Association of Realtors criticized the plan for its revisions to tax incentives that they say will impact middle-class homeowners and jeopardize home values. The National Association of Home Builders slammed the proposal for abandoning middle-class taxpayers in favor of the wealthy.
The National Association of Realtors announced that it believes the bill represents a tax increase on middle-class homeowners.
“This legislation closely tracks with the House Republican Blueprint for tax reform, which threatens home values and takes money straight from the pockets of homeowners,” said NAR President William E. Brown, a second-generation Realtor from Alamo, CA and founder of Investment Properties. “Realtors believe in the promise of lower tax rates, but this bill is nowhere near as good a deal as the one middle-class homeowners get under current law. Tax hikes and falling home prices are a one-two punch that homeowners simply can’t afford.”
Brown said that America’s homeownership rate 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, Realtors are concerned that homeownership’s wealth-building potential could be pushed out of reach, he noted.
Earlier this year, NAR released a full analysis of the House Republican blueprint for reform, finding that it would cause a 10% drop in home values and raise taxes on middle-class homeowners by an average of $815.
Like the blueprint, the legislation doubles the standard deduction, while repealing all itemized deductions, except for mortgage interest and charitable contributions. NAR noted in its comments on the “Unified Framework” for reform that such a proposal would nullify the homeownership incentive for all but the top 5% of tax filers.
NAR also noted the GOP proposal puts new restrictions on the capital gains exemption homeowners utilize today when they sell their home. The exemption is vital to allowing homeowners to use their equity to pay for retirement and other long-term needs.
“The nation’s 1.3 million Realtors cannot support a bill that takes homeownership off the table for millions of middle-class families,” Brown said. “We know this legislation is just the beginning of a much longer discussion. Our members will continue to make their voices heard as we push towards tax reform that responsibly lowers rate while protecting the dream of homeownership.”
HGAR Chief Executive Officer Richard Haggerty said of the GOP tax reform plan, “Our U.S. representatives need to stop playing with changes to federal tax policy that affect housing as though they are chess pieces. This is not a game. These proposed changes could have a devastating effect on the New York State economy and will directly impact home owners and prospective home buyers.”
Granger MacDonald, chairman of the National Association of Home Builders and a homebuilder and developer from Kerrville, TX, slammed the proposal in a statement released shortly after the tax cut and reform plan was unveiled by House Republicans.
“The House Republican tax reform plan abandons middle-class taxpayers in favor of high-income Americans and wealthy corporations. The bill eviscerates existing housing tax benefits by drastically reducing the number of home owners who can take advantage of mortgage interest and property tax incentives,” MacDonald said. “And capping mortgage interest at $500,000 for new home purchases means that home buyers in expensive markets will effectively lose this housing tax benefit moving forward.”
He added that the House leadership ignored a plan proposed by NAHB that he said House Ways and Means Committee leaders had agreed to include in the legislation. The NAHB proposal would have provided what he termed as a robust homeownership tax credit that would have helped up to 37 million additional home owners, most of whom are low- and moderate-income home owners, who do not currently itemize.
“Meanwhile, as corporations receive a major tax cut, small businesses, which generate the lion’s share of job growth, get limited relief. The bottom line: Congress is ignoring the needs of America’s working-class families and small businesses,” MacDonald asserted. “And by undermining the nation’s longstanding support for homeownership and threatening to lower the value of the largest asset held by most American families, this tax reform plan will put millions of home owners at risk.”
According to published reports, other likely controversial components of the proposed legislation include a provision that would impose a new 1.4% tax on private university endowments, delete a deduction for people with high medical bills, including individuals with chronic conditions. Reports also note that foreign companies operating in the United States would face higher taxes if the GOP tax reform bill was enacted as drafted.
House Ways and Means Committee Chairman Kevin Brady (R-TX) introduced the Tax Cuts and Jobs Act, which is co-sponsored by House Speaker Paul Ryan (R-WI) and all GOP members of the House Ways and Means Committee.
Chairman Brady said of the proposal, “Today marks the beginning of the end of our nation’s broken tax code. The Tax Cuts and Jobs Act will deliver real tax relief to Americans across the country—especially low- and middle-income Americans who have been struggling for far too long to earn a raise and get ahead.
He added, “Our legislation is focused entirely on growing our economy, bringing jobs back to our local communities, increasing paychecks for our workers, and making sure Americans are able to keep more of the money they earn.”
House Speaker Ryan said the plan would provide a middle-income family of four, earning $59,000 (the median household income) $1,182 in tax savings. “This plan is for the middle class families in this country who deserve a break,” Speaker Ryan said. “It is for the families out there who are living paycheck to paycheck who just keep getting squeezed.”
U.S. Senate Releases Tax Reform Proposal
The U.S. Senate released its own tax reform proposal on Nov. 9th. While the Senate version of tax reform differs somewhat from the House proposal, including no changes to the mortgage interest deduction and a delay in the corporate tax cut, it does call for the elimination of state-and-local tax deductions and a near doubling of the standard deduction, as well as the elimination of other popular tax deductions.
National Association of Realtors President Elizabeth Mendenhall, a sixth-generation Realtor from Columbia, MI and CEO of RE/MAX Boone Realty, said that as NAR reviews the legislation, Realtors are steadfast in ensuring homeownership is protected throughout the tax debate.
“While we are still reviewing the outlines of this proposal, we are watching closely for changes to current law that might leave middle-class homeowners—and homeownership broadly—in a worse place than it is today,” Mendenhall said. “We’ve already seen that a near-doubling of the standard deduction, combined with the elimination of other deductions like the state-and-local tax deduction, can turn the American Dream into a nightmare for families, as the rug is pulled out from under them. Simply preserving the mortgage interest deduction in name only isn’t enough to protect homeownership.”
She continued, “America still believes in the promise of homeownership. Tax reform should reflect that belief, and as we continue to examine this proposal, that’s exactly what we’ll look to see.”
President Trump said at a press briefing that he hopes the tax cut and reform measure can be approved by Congress by Christmas.
Key Provisions of the Tax Cuts and Jobs Act for Individuals and Families include:
• Lowers individual tax rates for low- and middle-income Americans to 0%, 12%, 25%, and 35% and continues to maintain 39.6% for high-income Americans.
• Increases the standard deduction from $6,350 to $12,000 for individuals and $12,700 to $24,000 for married couples.
• Eliminates special-interest deductions that increase rates and complicate Americans’ taxes±so an individual or family can file their taxes on a form as simple as a postcard.
• Establishes a new Family Credit, which includes expanding the Child Tax Credit from $1,000 to $1,600 to help parents with the cost of raising children, and provides a credit of $300 for each parent and non-child dependent to help all families with their everyday expenses.
• Preserves the Child and Dependent Care Tax Credit.
• Preserves the Earned Income Tax Credit to provide tax relief for low-income working Americans.
• Streamlines higher education benefits to help families save for and better afford college tuition and other education expenses.
• Continues the deduction for charitable contributions.
• Preserves the home mortgage interest deduction for existing mortgages and maintains the home mortgage interest deduction for newly purchased homes up to $500,000.
• Continues to allow people to write off the cost of state and local property taxes up to $10,000.
• Retains retirement savings options such as 401(k)s and Individual Retirement Accounts.
• Repeals the Alternative Minimum Tax.
• Provides immediate relief from the Death Tax by doubling the exemption and repealing the Death Tax after six years.
For Businesses, the Tax Cuts and Jobs Act would:
• Lower the corporate tax rate to 20% – down from 35%.
• Reduces the tax rate on small business income to no more than 25%– the lowest tax rate on small business income since World War II.
• Establishes strong safeguards to distinguish between individual wage income and “pass-through” business income.
• Allows businesses to immediately write off the full cost of new equipment to improve operations and enhance the skills of their workers.
• Protects the ability of small businesses to write off the interest on loans that help these Main Street entrepreneurs start or expand a business, hire workers, and increase paychecks.
• Retains the low-income housing tax credit that encourages businesses to invest in affordable housing.
• Preserve the Research & Development Tax Credit.
• Strengthens accountability rules for tax-exempt organizations to ensure the churches, charities, foundations, and other organizations receiving tax-exempt status are focused on helping people and communities in need.
• Modernizes the international tax system so America’s global businesses will no longer be held back by an outdated “worldwide” tax system that results in double taxation for many of our nation’s job creators.
• Makes it easier and far less costly for American businesses to bring home foreign earnings to invest in growing jobs and paychecks in our local communities.
• Prevents American jobs, headquarters, and research from moving overseas by eliminating incentives that now reward companies for shifting jobs, profits, and manufacturing plants abroad.
Editor’s Note: Government Affairs Director for the Hudson Gateway Association of Realtors Philip Weiden said that HGAR members and affiliates should respond to the Call to Action issued by the National Association of Realtors on the federal tax reform issue.
For Realtors to respond to the NAR Call to Action click on the following link: https://realtorparty.realtoractioncenter.com/site/Advocacy?cmd=display&page=UserAction&id=4976&utm_source=rorg&utm_medium=website&utm_campaign=tax2017&s_src=website&s_subsrc=rorg
Non-Realtors can click on the following link to participate in the Call to Action on tax reform: http://homeownershipmatters.realtor/taxreform/