The final tax bill is here, tentatively, say Republican lawmakers, various sources report. With a vote planned for next week, Republicans had to reconcile hundreds of tax code pages before coming to a swift resolution that ties together both bills in a way that appeases majority voters.
The Republican party has hurried the legislative process in order to pass tax reform legislation by the end of the year that adds no more than $1.5 trillion to the deficit over the next 10 years. Only one bipartisan conference was held on Wednesday to discuss the final bill before it hits the voting floor next week. Although details of the new bill are scattered and unconfirmed, legislators have set a deadline for this Friday to release the full text.
The final bill reportedly has the current 35 percent corporate rate lowered to 21 percent, instead of the 20 percent that passed in the House and Senate bills. Sources say the final bill will likely repeal the corporate alternative minimum tax, as well as the Affordable Care Act’s mandate to have health insurance. In addition, the new bill may lower the top individual tax rate to 37 percent from 39.6 percent. Most importantly to the real estate industry, there are talks of raising the proposed $500,000 limit on the mortgage interest rate deduction in the House bill to $750,000 for newly purchased homes. This amount is still lower than the $1 million limit that is currently in place and was proposed in the Senate bill.
Homeowners are also awaiting news on the state and local tax (SALT) deduction, which can play a role in tax-burdening property owners. Details on SALT have not yet been released, but the Senate and House bills included property tax provisions with a $10,000 cap and repealed deductions for income and sales taxes.
“Based on what’s been released so far, the Tax Cuts and Jobs Act reduces incentives for homeownership and may reduce the rate at which homeowners move up from starter to larger homes based on its provisions of partially rolling back the mortgage interest deduction, limiting the property tax deduction and adding new restrictions on the exemption of capital gains tax for primary residents,” says Realtor.com Senior Economist Joseph Kirchner, Ph.D. “It is likely to exacerbate the current shortage of homes for first-time buyers and millennials by stimulating the demand for housing by increasing the after-tax income for many buyers. This comes at a time when the lack of homes for sale on the market will not yield increased sales, only increased prices.”
He adds, “The bill’s projected shortfall of $1.5 trillion, will result in a huge economic stimulus, at the top of the business cycle, which is likely to result in inflation, countered by more rapid interest rate increases by the Federal Reserve, translating into climbing mortgage rates.”
According to The New York Times, The Treasury Department released a one-page analysis of the Senate Bill on Dec. 11 that says the legislation would pay for itself if economic growth averages 2.9 percent a year after adjusting for inflation (over the next 10 years), and is dependent on other economic policies proposed by the Trump Administration.
In a recent maneuver to spread the word about tax reform to the community, the National Association of REALTORS® (NAR) took out an ad in the Wall Street Journal calling for further action to make provisions that will benefit current and future homeowners. NAR asked the House and Senate conference committee to take the following into consideration:
- Maintain the current capital gains exclusion for the sale of a principal residence
- Keep the current mortgage interest rate deduction cap at $1 million
- Expand the limits on state and local tax deductions to include income or sales tax
NAR also released an infographic on how the proposed changes to the mortgage interest and property tax deductions would affect homeowners. According to NAR, 85 percent of homeowners would experience financial strain and 30 percent would be reluctant to move. In an effort to inform homeowners across the U.S., NAR published a page on its website that allows residents to see how tax reform would impact homeownership in their state.
“Homeownership is an aspirational goal for millions of Americans, but getting there isn’t always easy,” says NAR President Elizabeth Mendenhall. “Middle-class families count on tax incentives like the mortgage interest deduction and the state and local tax deduction to make homeownership a more affordable prospect. “REALTORS® will continue to advocate for these and other important provisions as the tax reform debate continues.”
Stay tuned to RISMedia for more developments.
Liz Dominguez is RISMedia’s associate content editor. Email her your real estate news ideas at ldominguez@rismedia.com.
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