A long-awaited proposal to simplify and overhaul the tax code appears to be dead on arrival, with Republican leaders showing little enthusiasm for a draft proposal put forward today by House Ways and Means Committee Chairman Dave Camp, R-Mich.
Among the many provisions outlined in a summary of the draft legislation, those of most interest to the real estate industry include a proposal to gradually reduce from $1 million to $500,000 the amount of mortgage debt for which homeowners can claim an itemized deduction for interest paid.
U.S. Capitol image via Shutterstock.
Changes to the mortgage interest deduction are intended to “more effectively promote homeownership, rather than also promoting leveraged purchases of larger homes than taxpayers otherwise would acquire without the tax benefit,” a summary of the bill explains. The bill would also provide for a more generous standard deduction, which 95 percent of taxpayers would be better off claiming, which would help address criticism that most homeowners don’t take advantage of the mortgage interest deduction because they don’t itemize deductions.
Another big change would be tighter requirements for excluding gains on the sale of a principal residence. Currently, homeowners can exclude up to $250,000 in gains ($500,000 for married couples) on the sale of a home that’s been their principal residence for two out of the five previous years, and they can claim this exclusion every five years. Camp’s proposal is to require that homeowners live in a home for five out of the previous eight years in order for it to be considered their principal residence, and allow them to use the exclusion only once every five years.
The bill would also repeal a special rule allowing deferral of gains on like-kind exchanges of “1031” investment properties.
There may be no point in combing through every page of the 979-page discussion draft, however. As USA Today lamented in an editorial, the top Republican in the Senate, Mitch McConnell, had already stated that the Senate won’t tackle tax reform in an election year.
Asked by reporters about some of the plans more contentious proposals, House Speaker John Boehner, R-Ohio, reportedly said, “Blah, blah, blah, blah. Listen, there’s a conversation that needs to begin. This is the beginning of the conversation.”
Asked if Republicans supported the plan, Boehner said, “You’re getting a little bit ahead of yourself.”
While USA Today characterized Camp’s plan as “far from perfect,” the newspaper’s editorial board blasted lawmakers, saying, “There’s no excuse for not having a simpler code by tax time a year from now, except self-serving politics and a lack of political will.”
A statement issued by the American Land Title Association today gives some indication of the line of argument that real estate industry will take if a serious debate over perks for homeowners and investors does get underway.
“Homeownership and investment in real estate is the primary financial asset for most Americans and small-business owners,” said Justin Ailes, ALTA’s vice president of government and regulatory affairs, in the statement. “Homeownership has long been the way American middle-class families have built personal savings. Lowering the mortgage interest deduction and repealing tools to encourage reinvestment through like-kind exchanges could hurt consumers’ savings and economic growth across the country.”
The National Association of Realtors cited a proposed repeal of deductions for state and local property taxes as another item on the real estate industry’s hit list.
“These proposed changes to the taxation of real estate will impact every single American, either directly or indirectly,” NAR President Steve Brown said in a statement.