NAHB Summarizes Tax Reform Plan and Its Impact on Housing

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October 31, 2017

NAHB Summarizes Tax Reform Plan and Its Impact on Housing

House Republicans unveiled their tax reform bill today and unfortunately it is even worse than we thought. As NAHB staff continues to analyze the 429-page legislative package, we wanted to quickly provide an overview of the bill to our members.

NAHB believes this plan will ultimately harm home values, act as a tax on middle-class home owners and discourage younger, first-time home buyers from entering the market.

As I reported yesterday, NAHB came out in strong opposition to the plan because it severely marginalized existing housing tax benefits by drastically reducing the number of home owners who can take advantage of mortgage interest and property tax incentives.

The legislation goes a step further by capping mortgage interest at $500,000 for new home purchases. This means that home buyers in expensive markets will effectively see the value of this housing tax incentive further diminished. There is also no mortgage interest deduction for second homes.

The House leadership killed a cost-effective plan proposed by NAHB that House tax-writing committee leaders agreed to include in the bill. It would have provided a robust homeownership tax credit to help up to 37 million additional home owners who do not currently itemize.

In addition to eviscerating the mortgage interest deduction, the Republican tax bill provides generous tax relief to large corporations while small businesses wind up with limited relief.

We need all NAHB members to engage on this issue. Please email your congressman and let them know that this tax reform legislation, as written, is wrong for America. Encourage them to revise the bill to include NAHB’s proposed homeownership tax credit that would benefit the middle class. Visit http://www.capitolconnect.com/builderlink/ to send an email.

Here are other pertinent provisions in the Republican overhaul plan.

  • Property taxes. It allows home owners to deduct up to $10,000 in property taxes. Even by keeping this $10,000 figure, NAHB estimates a 60 percent decline in the number of itemizers earning between $100,000 and $200,000. As for the $10,000 property tax cap, 3.7 million households paid more than $10,000 in property tax according to our analysis of Census data. More than 30 percent of home owners who live in New York and New Jersey pay more than $10,000 in property taxes.
  • State and local taxes. Deductions are eliminated for state and local income taxes.
  • Capital gains exclusion. The capital gains exclusion for selling a home ($250,000 for a single filer and $500,000 for a married couple) would be modified from the current two of five years rule to five of eight years. In another words, you must live in your primary residence for five of the past eight years in order to claim the capital gains exclusion when you sell your home.
  • Business interest deduction. This would be capped at 30 percent of earnings before interest, taxes, depreciation and amortization, which is a measure of cash flow. Real estate and small businesses ($25 million gross receipts test) are exempt from the cap.
  • Marginal tax rates.

Singles:                                                     Married:

12 percent up to $45,000*                  12 percent up to $90,000*

25 percent up to $200,000                  25 percent up to $260,000

35 percent up to $500,000                  35 percent up to $1 million
39.6 percent over $500,000                39.6 percent over $1 million

* Benefits of 12 percent bracket would be phased out at higher incomes.

  • Standard Deduction. Raises the standard deduction from $6,350 to $12,200 for individuals and $12,700 to $24,400 for married couples.
  • Low-Income Housing Tax Credit. This will remain in the tax code, but private activity bonds would be eliminated, greatly reducing affordable housing production.
  • Carried interest. The bill preserves the carried interest tax break.
  • Like-kind exchanges. This provision is preserved for real estate.
  • Estate tax. Increases the current $5.49 million exemption to $10 million and repeals the estate tax after six years.

This tax reform package undermines the nation’s longstanding support for homeownership and threatens to lower the value of the largest asset held by most American families. In short, this tax reform plan lacks any significant homeownership tax benefit and will put millions of home owners at risk.

NAHB will continue to aggressively oppose this tax reform bill and we will keep you apprised of any major developments.

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