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Senate tax plan garners cool industry reception


Reaction from the mortgage and housing industry to the Republican Senate tax plan unveiled Thursday has so far been subdued, although mostly critical.

The Senate version of the tax-reform blueprint calls for scaling down existing homeownership incentives in the federal code, but to a lesser degree than the House GOP plan released last week.   

taxsenatereformAs with the House bill, the Senate plan proposes to nearly double the standard deduction, a move that would limit significantly the number of filers who itemize their tax returns — and so take the deduction on mortgage interest.

The Senate version also strips out the deduction on state income taxes, and local property and sales taxes.

One major difference between the House and Senate proposals is that the Senate plan proposes to preserve the present cap on the mortgage-interest deduction at up to $1 million in mortgage debt.

The House bill would enable the deduction only up to $500,000 in mortgage debt for newly purchased homes, and would strip out a person’s ability to deduct mortgage interest on second homes. Both the House and Senate versions would eliminate the interest deduction on lines of credit.

The changes in the Senate version, however, is unlikely to win any support from Realtors, homebuilders, or other industry groups that have come out against the House plan. 

“There's really nothing at all in the House bill that's good for housing,” said Rick Sharga, executive vice president at the online real estate services company Ten-X. “The cumulative impact of the changes recommended in this legislation could derail the housing-market recovery, which would have implications for the broader economy,” he told Scotsman Guide News.  

As for the Senate version, Sharga said that “preliminary indications are that it's not much better.”

The National Association of Realtors (NAR) has drawn a hard line against tax reform that would significantly limit the number of itemized filers and water down the impact of the mortgage-interest deduction. The National Association of Home Builders (NAHB) says its support for a tax overhaul is conditional on the creation of a homeownership tax credit that would replace the mortgage-interest deduction.

NAR issued a statement on Thursday following the release of the Senate plan indicating that it was still reviewing it, but noting the similarities with the House bill that it opposes.

“We’ve already seen that a near-doubling of the standard deduction, combined with the elimination of other deductions like the state and local tax deduction, can turn the American Dream into a nightmare for families, as the rug is pulled out from under them,” said NAR President Elizabeth Mendenhall. “Simply preserving the mortgage interest deduction in name only isn’t enough to protect homeownership.”

In a statement, NAHB Chairman Granger MacDonald said the Senate version "represents a positive development" over the House bill, although "we still believe that maintaining an effective homeownership tax benefit is vitally important."  

Other major trade groups have yet to comment on its treatment of housing incentives.

In a recent analysis of the House bill, the Tax Policy Center said the number of filers who elect to itemize would fall by 75 percent in 2018 to 12.5 million filers.

Support for the current mortgage deduction is not universal, however. The Tax Policy Center says the current deduction provides little benefit to filers in the lower brackets. Meanwhile, upper-bracket wage earners gain the most benefits.

The center’s analysts also have noted that the deduction costs about $60 billion annually. Although it likely contributes to higher home prices and the construction of larger, more expensive homes, the center said it hasn’t proven to boost homeownership rates.

In a recent statement on the House bill, the National Low Income Housing Coalition (NLIHC) said the GOP plan’s to strip down the mortgage interest deduction was admirable, but criticized the overall tax plan.

“Instead of using the savings from [mortgage interest deduction] reform to better target spending on rental housing solutions for those with the greatest needs, House Republicans funnel these and other savings to pay for highly regressive tax cuts for the richest households and corporations,” said NLIHC President Diane Yentel in a statement. 


 

Questions? Contact at (425) 984-6017 or victorw@scotsmanguide.com.

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  1. Posted: Nov 17, 2017  11:29 ET
    By: James Summers | Commerce Home Mortgage
    1. 0


7% of all mortgages originated are over $500,000, that means that 93% of homeowners in the United States will still enjoy a tax deduction using their mortgage interest, more knee jerk reaction by special interest groups.


 

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