The Trump tax reform plan has been under intense scrutiny, and who knows what will come of it. But the response from our National Association of Realtors was exactly what we can expect from them for the duration. They entitled their article, “Homeownership in the Crosshairs of Latest Tax Plan”. An excerpt:
The mortgage interest deduction and the state and local tax deduction make homeownership more affordable, while 1031 like-kind exchanges help investors keep inventory on the market and money flowing to local communities.
“Those tax incentives are at risk in the tax plan released today. Current homeowners could very well see their home’s value plummet and their equity evaporate if tax reform nullifies or eliminates the tax incentives they depend upon, while prospective homebuyers will see that dream pushed further out of reach. As it stands, homeowners already pay between 80 and 90 percent of U.S. federal income tax. Without tax incentives for homeownership, those numbers could rise even further. And while we appreciate the Administration’s stated commitment to protecting homeownership, this plan does anything but.”
“Homeowners put their hard-earned money on the line to make an investment in themselves and their communities, and it’s on them to protect that investment. Common sense says owning a home isn’t the same as renting one, and American’s tax code shouldn’t treat those activities the same either.
“Realtors® support tax reform, and it’s encouraging to see leaders in Washington doing their part to get there. We believe tax rates should come down to the degree that sound fiscal policy allows, and simplifying the tax code will help ensure fairness and transparency for individual taxpayers. It’s a goal we share with the authors of this tax plan, but getting there by eliminating the incentives for homeownership is the wrong approach. We look forward to working with leaders in Congress and the administration to reform the tax code, while preserving America’s long-held commitment to homeownership.”
This quote was from our N.A.R. president, a volunteer position that changes every year. I don’t have high expectations of them, but can’t we do better?
To threaten that home values will “plummet” if the M.I.D. is eliminated is a gross fabrication only meant to scare people. The average mortgage amount in America is $168,000 – any big benefit from the mortgage-interest deduction is by wealthy individuals who can qualify for larger mortgages. With our ultra-low interest rates, any actual benefit is limited. Values won’t ‘plummet’ if the M.I.D. goes away.
Let’s also note that if values did plummet, then wouldn’t prospective homebuyers benefit, instead of seeing their “dream pushed further out of reach”??
The real threat is that if the M.I.D. did get phased out, then the NAR lobbyists would be out of a job.
Laughable. They unveiled a one-page bullet point memo, not a tax plan. Just enough morsels to rev-up the lobbyist industry to full tilt.
Under-the-radar real estate tax scare thought of the day:
— If they “eliminate” the estate tax, does that also eliminate the “stepped-up-basis” at date-of-death? As far as I understand it, right now, you get stepped-up basis because there IS an estate tax. It is presumed by the taxman that the tax on the increase in value of the real estate is paid because the full value of the real estate is included in the estate and estate taxes are paid. Few actually have to pay the estate tax because there is an EXEMPTION to the estate tax for the first 5 million (individual) and 10 million (couple) gross estate value. If they completely eliminate the estate tax (as opposed to monkey with the exemption amount), then there is no mechanism to step-up the basis and the kids will inherit the property with the low tax basis of the parents. That would eliminate the reason many folks hold on to houses far longer than they need to…..
There’s a game-changer for ya!
Let’s also note that California is tinkering with taxes too. Deducting interest paid on second-home mortgages? Sounds like a benefit reserved for rich people, yet our state realtors are adamant about saving it too:
AB 71 (Chiu), a mortgage interest deduction elimination bill opposed by C.A.R., passed out of the Assembly Housing and Community Development Committee. This bill would, among other things, eliminate the state tax deduction for mortgage interest on second homes and direct these new tax revenues to an existing program that finances low-income housing construction through tax credits. C.A.R. will oppose AB 71 until it is amended to remove the provision that would eliminate the mortgage interest deduction for second homes.
If tax code is written to achieve a specified amount of revenue (ie enough to fund the government – haha), one could look at the MID as a tax on non-homeowners. Why should people that choose to rent subsidize people that choose to buy? Especially those that choose to buy a second home…. I am more than happy to take the deduction, but would understand it going away or being subsumed into a larger standard deduction. A larger standard deduction actually fits better into the conservative narrative I hear so often because the tax code should not be used to drive social agenda. I don’t need the nanny state telling me I have to buy a house.
Once again, JtR tells the REAL truth. Keep up the good work, Jim!
There you go using “logic” again! 🙂
It is a curse, isn’t it?
As has been noted elsewhere the plan favors the red states (where housing in cheaper) over the coastal states where housing is more expensive. If you look at a 24k standard deduction and eliminate the state and local tax deduction, then most couples in the center of the country will not itemize at all. even a 200k mortgage at 5% would only generat 10k in interest. It is only on the high priced coasts that the mid will make any difference in this scenario, all be it the max deduction at 5% is only 50k anyway (1 million max mortgage)
The mortgage-interest deduction has withstood years of criticism, despite the fact that middle-class Americans aren’t the ones getting the tax break. It’s really popular with existing homeowners. And the real-estate industry has been successful in uniting in its defense, according to Alan Cole, an economist with the Tax Foundation, a Washington, D.C.-based think tank. “It will probably exist for as long as we have an income tax,” Cole said.
While many Americans and lobbyists working on behalf of the real estate industry defend the mortgage-interest deduction, not too many people are taking it. Wealthy Americans are far more likely to benefit from the mortgage-interest deduction than others, in part because they’re more likely to itemize their tax returns.
Nearly half of all tax returns claiming the mortgage-interest deduction come from tax filers with $100,000 or more in income, versus roughly 13% of those making less than $50,000 a year, according to data from the Internal Revenue Service and the U.S. Congress Joint Committee on Taxation included in a report from the Washington, D.C-based libertarian think-tank Reason Foundation. “Since you can’t take the mortgage interest tax deduction unless you itemize, it really skews toward higher income,” said Felipe Chacón, a housing economist with real estate website Trulia.
Through the mortgage-interest deduction, homeowners can receive a tax break on what they spend in mortgage interest payments. To receive the benefit of itemizing this deduction, it must combine with a tax filer’s other deductions to exceed the standard deduction. Trump’s plan calls for doubling the standard deduction to $12,400 for single individuals and $25,200 for married couples filing jointly, which consequently would raise the bar in terms of the amount homeowners need to pay in mortgage interest to qualify.
That makes it even more likely that wealthy Americans and those living in high-priced real estate markets will be the ones to benefit, said Svenja Gudell, chief economist at real estate website Zillow. “Before it was for the wealthy, now it’s for the ultra-wealthy,” Gudell said.
As such, the mortgage interest tax deduction exacerbates inequality in housing. After controlling for age and income, white households are three times more likely to take advantage of the tax break than black households, Trulia found in a report released last April. Similarly, men benefit from the deduction more often than women do.
At the same time, the tax break doesn’t seem to incentivize homeownership a whole lot. Government data show that the homeownership rate in Canada (69%) is actually slightly higher than in the U.S. (63.7%), despite the fact that the Canadian tax code doesn’t include any deduction for mortgage interest paid. And rental households obviously don’t see the tax benefit, since they don’t have access to it. “It’s not clear that the U.S. has had a boon of homeownership because of the mortgage interest tax deduction,” Chacón said.
Abandoning the mortgage-interest deduction could actually free up the federal government to support other forms of housing assistance for Americans. The Tax Foundation calculated that getting rid of the tax break would raise $1.7 trillion in revenue over 10 years (but only reduce the gross domestic product by 0.3% over that same time span.)
Meanwhile, a report released earlier this month by the privately-held, New York-based Ford Foundation, which aims to promote social welfare, found that the federal government spent $39 billion more on the tax benefits for mortgage interest and property taxes in 2015 than it did on rental assistance programs including Section 8 housing vouchers. “There’s a good case to be made that the government could take that revenue and do something more productive with it,” Cole said.
http://www.marketwatch.com/story/why-trump-should-have-ditched-the-mortgage-interest-deduction-2017-04-27
I’d happily give up the mortgage interest deduction in a nanosecond for a 15% corp tax rate and the elimination of that freaking F*^&$*&*(%^_)&^%*&^!!!! Alternative Minimum Tax.