Tax plan from Republicans hurts homeowners

The Tax plan from Republicans hurts homeowners

Radical changes on deductions:

A core element of the GOP plan would be a major downsizing of the many deductions that have cluttered up the nation's tax code over the years. Many individual write-offs would disappear, though the charitable-donation deduction would be retained and homeowners would keep at least some of their key breaks.

Deductions that would be eliminated include those for state and local income taxes, casualty losses and medical expenses (though current law allows medical write-offs only above 10 percent of income). Also, the plan would scrap the personal exemption.

Also repealed: deductions for alimony payments and moving costs. In addition, the bill would scale down some higher-education benefits, including the interest deduction on student loans and a deduction for tuition expenses.

To compensate, the House Republican proposal would roughly double the standard deduction, which would benefit about 70 percent of Americans who utilize this tax break rather than itemizing deductions separately. The new standard deduction would jump to $12,000 from $6,350 for single taxpayers, with a rise to $24,000 from $12,700 for married couples filing jointly. It would be indexed for inflation, meaning the 2018 amount for married couples, for example, actually would be set at $24,400.

Housing:

The two key housing write-offs — those affecting mortgage interest and property taxes — would change for some people. Existing homeowners still would be able to deduct their mortgage interest, as is currently the case. But buyers of homes in the future would be limited to deducting interest on up to $500,000 in debt. That's down from a current cap of $1 million, Luscombe noted.

The mortgage-interest changes would apply to housing loans incurred after Nov. 2. This deduction would be limited to primary residences only (compared with one primary residence and one other home, under current law). So someone buying a property for $550,000 and making a $50,000 downpayment could still write off interest in full on the remaining $500,000 debt.

The property-tax deduction is another key item, especially in states like New Jersey and Illinois, where rates are high, and those like California where seven-figure home values are common. Under the proposal, homeowners would be able to deduct up to $10,000 a year in state and local property taxes.

The proposal also would curtail Americans’ ability to avoid taxes on housing capital gains.

Currently, people can skirt taxes on up to $250,000 of gains (singles) or $500,000 of  gains (married couples) if they both own and use a residence for at least two of the prior five years. The new plan would require homeowners to own and use a personal residence for five of the previous eight years. Also, this break would phase out for singles earning above $250,000 and couples making in excess of $500,000.

Tax plan caps property deduction at $10,000, puts new limit on mortgage deduction

A sweeping overhaul of the tax code unveiled by House Republicans on Thursday would cap the deduction for property taxes at $10,000 and preserve the mortgage interest deduction only for existing mortgages and new purchases with loans of $500,000 or less. 

Those changes will amount to a tax increase on high-income taxpayers with pricey homes, even if they get lower income tax rates.

We must reverse the decline in California’s homeownership rate. For over 100 years Congress has incentivized home-ownership with the tax code; currently through the mortgage interest deduction.  Any effort at reforming the tax code should maintain and prioritize this incentive. The current proposal only pays lip service to incentivizing home-ownership. The proposed changes will result in only top earners itemizing their deductions. Therefore, the vast majority of people will no longer receive any tax incentive to purchase a home. So, while the proposal keeps the mortgage interest deduction, the incentive effect of the deduction for Americans to become homeowners disappears.

It weakens the mortgage interest deduction.

• It caps the mortgage interest deduction to the interest on a mortgage principle of $500,000.
• Homeowners would no longer be able to deduct the interest they pay on home equity loans.
• The deductibility would be eliminated for second homes and limited to loans on a family’s primary residence.

Families build wealth through home-ownership. According to a report by the Federal Reserve in 2016, homeowners amassed wealth at a greater rate than renters. Renters had a median net worth of $5,200 while homeowners had a net worth of $231,400.