November 19, 2017
Tax Reform Passes U.S. House / NAHB Opposes HR 1
Bill Ward, Executive Vice President
Federal tax reform legislation has passed in the U.S. House of Representatives in spite of opposition by the National Association of Home Builders. On a partisan roll call, Republicans sent to the Senate a massive tax cut for business as well as tax cuts for individuals coupled with a doubling of the standard income deduction.
But the proposed tax code within HR 1 contains changes detrimental to home owners that will undoubtedly create scenarios of tax increases for middle class Americans who own their own homes. These include:
- A $500,000 cap on mortgage interest deduction for new construction.
- State & Local taxes will no longer be deductible except for a $10,000 cap on property taxes.
- Sale of a home prior to 5 years of ownership will result in 15% capital gains tax (currently 2 years).
NAHB would have conceded these measures had a new tax credit for home ownership been placed in the bill. This tax credit devised by NAHB had been part of negotiations for almost a year, and House Republican Leadership assured NAHB that the credit would be in the bill all the way up to its introduction on October 27th. But in the end, the tax credit was left out of HR 1.
Here’s how the tax credit works for mortgages:
- Multiply Mortgage interest by 12%.
- Multiply the first $5500 in property taxes by 12%.
- Add both sums together as your total tax credit.
On a $250K home loan at 4% interest with property taxes at $3000, the credit comes to $1560.
On a $750K home loan at 4% interest with property taxes capped at $5500, the tax credit would be $3060.
The beauty of this tax credit is that it can be used on simplified tax form which would help an additional 37 million home owners.
House Republicans from Illinois assured us that they were in favor of the tax credit and put blame for its deletion solely on House Speaker Paul Ryan (R-Wisconsin).
Overall though, Illinois Republicans are confident that even without the credit, the corporate tax cut will spur the economy while the doubling of the standard deduction will protect most middle class tax payers.
They also find comfort in knowing that the percentage of tax payers using the long form for deductions comes in at 20% to 30% of all tax payers in their districts, depending on the general wealth of the congressional district.
The U.S. Senate will now run their own version of tax reform and then it is likely that a negotiated Conference Report will be worked out between the upper and lower houses. Congressional members and the White House are confident this will be worked out before the end of the year. Hopefully, NAHB can get the Homeowners Tax Credit into the agreed language when the final votes are made.
