One of the two principal figures in charge of rewriting the nation’s income tax laws is Republican Dave Camp of Michigan, chairman of the all-powerful House Ways and Means Committee.

Last week he released an extremely comprehensive tax code overhaul plan that has been three years in the making. The plan is designed to simplify the tax law and lower overall tax rates while remaining revenue-neutral.

To call the plan bold is an understatement. Among many other things it:

  • reduces the number of tax brackets from the current seven to just three, with tax rates of 10 percent, 25 percent and 35 percent.
  • increases the standard deduction so that 95 percent of taxpayers would not have to itemize.
  • taxes long-term capital gains and dividends as ordinary income — that is, at the 10 percent, 25 percent and 35 percent rates — but exempting 40 percent of such income from any tax.
  • repeals the dreaded alternative minimum tax (AMT).
  • reduces the top corporate income tax rate to 25 percent from 35 percent, to be phased in over four years.

To pay for lower overall tax rates and a larger standard deduction, many individual tax deductions and preferences are eliminated. For example, the plan repeals:

  • all personal exemptions.
  • itemized deductions for unreimbursed employee expenses and medical expenses.
  • deductions for personal casualty losses, contributions to medical savings accounts, moving expenses, alimony, and tax preparation fees.

For those who itemize, the charitable deduction would be available only to the extent that charitable contributions exceeds 2 percent of adjusted gross income.

Businesses don’t go unspared under the plan. For example, businesses lose the ability to use accelerated deprecation to deduct the cost of business property. The plan also raises taxes on income earned by private equity managers and imposes a tax on the assets of the biggest banks and insurers. S corporations shareholders who actively participate in the corporate business would have to pay self-employment tax on 70 percent of their combined compensation and distributive share of dividends.

The real estate industry, in particular, takes a big hit. Camp’s plan cuts or eliminates some of the most cherished real estate-related tax deductions:

  • It caps the mortgage interest deduction at $500,000, down from the current $1 million. The lower cap would be phased in over four years. The cap would be $875,000 for debt incurred in 2015, $750,000 for debt incurred in 2016, $625,000 for debt incurred in 2017, and $500,000 for debt incurred thereafter.
  • The plan also completely eliminates the itemized personal deductions for state and local taxes, including property taxes. A move that has enraged leaders from high tax “blue” states like New York and California.
  • Tax preferential treatment for all like-kind exchanges is likewise eliminated.
  • Tax credits for new energy-efficient homes are repealed.
  • The plan even repeals the exception to the 10 percent penalty on early distributions from retirement plans and IRAs of up to $10,000 to pay for first-time homebuyer expenses.

To the National Association of Realtors, this must sound like a laundry list from hell.

The good news for the real estate industry, however, is that Camp’s plan is given absolutely no chance of being enacted into law. Both Democratic and Republican leaders have made it clear that the plan won’t come up for a vote in Congress. At most, the plan is a mere “conversation starter.”

But it seems likely that if and when serious discussions about tax reform do take place, reductions in real estate-related deductions will at least have to be on the table.

Stephen Fishman is a tax expert, attorney and author who has published 20 books, including “The Real Estate Agent’s Tax Deduction Guide,” “Working for Yourself,” “Deduct It!” and “Working with Independent Contractors.” His website can be found at

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