The House bill, which passed the tax-writing Ways and Means Committee recently and could go before the full House shortly, blurs the distinction between owning and renting by making it more advantageous for homeowners who itemize today to take the standard deduction instead. It does that by almost doubling the standard deduction while either eliminating or capping itemized deductions. The bill keeps the mortgage interest deduction but limits it to mortgages of $500,000, half of the limit today, and caps the property tax deduction at $10,000. The other state and local tax deduction is eliminated entirely, as are all other deductions except the one for charitable contributions. The bill also makes it harder to take the capital gains exclusion on the proceeds from the sale of a principal residence.
The Senate bill takes the same structure as the House bill but leaves MID at its current $1 million mortgage limit and eliminates the property tax deduction entirely, among other differences.
Although the higher standard deduction sounds like a win for many households, the increase is offset by the elimination of the personal and dependency exemptions. NAR calculates that many households will only see a small benefit from the higher deduction.
"If you're looking at it from a conceptual standpoint, sure, a tax cut is a great idea," said David Barber, GRI, ABR, of RE/MAX Unlimited, Inc., in Aurora, Colo., and the federal political coordinator for Rep. Mike Coffman of Colorado. "But how does the rubber meet the road on that? Some of the advantages they think they're providing aren't really advantages to middle-class homeowners."
"This is the biggest and scariest thing I've seen," said Brian Urdiales of Madison & Co., Properties in Greenwood Village, Colo., and the federal political coordinator for Sen. Cory Gardner of Colorado. "People don't realize that what happens here in Washington can affect their profession and affect their customers."
More on NAR's concerns with the House bill can be found here:
Newsroom: House Tax Bill Delivers Tax Hike on Homeowners
Washington Report: House Proposal Harms Homeowners
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