From Forbes:
In an effort to simplify the nation’s unwieldy tax code, Rep. Dave Camp (R-Mich.) is socking it to homeowners.
His proposal as chairman of the House Ways & Means Committee, The Tax Reform Act of 2014, hits first-time home buyers, jumbo mortgage seekers, homeowners who have ratcheted up big gains in their primary residence, and even homeowners who are aiming to green their homes by making them more energy efficient. Of course, the proposals aren’t law – yet— but here’s where his plan would hit home. The context is streamlined individual income tax rates and an outsized standard deduction. But if you’re a homebody, you’re likely going to be paying more in taxes.
Drastic limit to mortgage interest deduction. Today you can deduct mortgage interest on up to $1.1 million in debt ($1 million in acquisition indebtedness and $100,000 in home equity debt) on a principal and second residence, but under Camp’s tax reform proposal that is reined in big time.
The maximum amount of indebtedness on which you could take the mortgage interest deduction would be $875,000 in 2015, $750,000 in 2016, $625,000 in 2017 and $500,000 in 2018 and later. Interest paid on home equity indebtedness would not be deductible after 2014. Special rules apply in the case of refinancing as long as you aren’t taking out a bigger mortgage.
Tightening of exclusion of gain from sale of principal residence. Camp’s proposal tightens the rules for excluding gain from the sale of your home. Currently you can exclude $250,000 ($500,000 for a couple) of gain if you’ve owned and used the residence as your principal residence for at least two of the five years before you sell.
The proposal changes the rules so that it only applies if you’ve used the residence as your principal residence for at least five of the eight years prior to the sale. It also limits the exclusion so it only applies once during any 5-year-period (up from 2 years). And it phases out the exclusion by one dollar for every dollar a taxpayer’s adjusted gross income exceeds $250,000 ($500,000 for a couple).
Read full article here:
They didn’t mention he’d also cut the deduction for state (i.e. property) tax. That’s huge.
The overall package is good in terms of simplifying the code and flattening taxes, but it doesn’t have a prayer of passage.
Why do people keep voting for knuckle heads like this? I’ll get this out on my Twitter feed.
I think the GOP goal is to eliminate ALL tax breaks for middle class folks (what’s left of it).
jd,
You’d get lower rates and larger standard deductions. So it would be good for middle class people unless they had huge mortgages and high state taxes.
So I read the actual proposal, and I don’t see how he can get away with calling it “simplified.” IMHO, he is proposing to replace one set of complicated rules with a different set of complicated rules.
The tax code will never get simpler because 1) a large and powerful industry (lawyers and accountants) depends on it, 2) Congress uses it to manipulate behavior and reward various interest groups, 3) the more complicated, the more ways to game the system (see #1).
W.C, you just described all of California. “…unless they had huge mortgages and high state taxes.” Actually most of those states with low or no income tax have pretty hefty property tax, so that would hit those places too….
The one-trick-pony response:
WASHINGTON (February 26, 2014) – The following is a statement by National Association of Realtors® President Steve Brown:
“NAR supports reforms that promote economic growth, but we strongly oppose severely altering the rules that govern ownership and investment in real estate. Real estate powers almost one-fifth of the U.S. economy, employs more than 17 million Americans, and contributes a quarter of all federal and state tax revenue and as much as 70 percent of local taxes.
“We are extremely disappointed with several of the provisions contained in U.S. House Ways and Means Chairman Dave Camp’s tax reform draft released today, namely proposed limits on the mortgage interest deduction and capital gains, and the repeal of deductions for state and local property taxes. These proposed changes to the taxation of real estate will impact every single American, either directly or indirectly.
“NAR will carefully analyze the details of the Chairman’s plan so we can best educate Congress and the public about how this plan would impact the owners, consumers, and producers of both residential and commercial real estate.”
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.
http://www.realtor.org/news-releases/2014/02/realtors-oppose-tax-plan-to-limit-mortgage-interest-deduction-real-estate-provisions
Actually the way its framed the changes are a coasts (blue) versus center of the country issue. If you look at Indianapolis the average price is $122k, (make it 125 for round numbers) The average tax rate in IN is .85% making the average property tax about 1060 a year. Then at 4.5% the mortgage payment is about 4500 a year. So for a married couple with a standard deduction of 22k under the proposal, housing provides about 25% of the standard deduction. The median wage is 52k. As a result if you take Indianapolis as the standard its clear that for central states by far the most folks would take the standard deduction.
It is not surprising that the proposal would favor the center over the coasts as that is where his parties strength is.