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Trade groups: Capital-gains change will harm millions

The banking and housing lobby have asked Republican leaders to scuttle the plan in the pending tax overhaul to tighten the capital gains exemption in home sales.

A total of 11 organizations, including the Mortgage Bankers Association (MBA) and National Association of Realtors (NAR), asked GOP leaders, who are now reconciling the House and Senate bills, not to impose a new standard that would require a tax filer to have lived in the home for five out of the last eight years to obtain an exemption on capital gains.

homeflipping(1)A tougher standard “will disproportionately penalize growing families and discourage labor mobility,” the letter said. 

NAR, one of the largest lobbies in Washington, D.C., have come out strongly against the Republican tax plans which, to varying degrees, minimize the impact of the mortgage interest deduction. Both plans would nearly double the standard deduction, which would render the itemized deduction on mortgage interest useless for most Americans as most would no longer itemize. The plans also propose to eliminate deductions for state and local taxes, except property taxes up to $10,000. 

MBA, the largest mortgage banking lobby, has been less critical of the tax proposals, but likewise expressed concern over watering down tax incentives that encourage homeownership.   

As the tax bills have advanced, more economists have been keying on the potential negatives to a change in the capital gains exemption. In a recent interview with Scotsman Guide News, NAR's Chief Economist Lawrence Yun said the proposed change amounted to a tax on moving. 

"The tax reform is, in essence, saying, stay put," Yun said. "Don’t move. If you move, we will tax you." 

Under current law, a filer must live in the home for just two of the previous five years, and can claim an exemption for up to $250,000 in capital gains ($500,000 for joint filers). Both the House and Senate versions of the bill propose to toughen the residency standard. According to Joint Committee on Tax, the proposal would generate about $800 million in over 10 years. The trade groups say it would harm millions of Americans.

“Increasing this holding period would act as a disincentive and tax penalty for many homeowners needing to move up or move down as life events occur,” the letter said.

“Like you, we support economic growth through homeownership and do not want to prevent homeowners from moving between otherwise prudent housing choices and properties driven by both expected and unexpected life events,” the letter said. “As structured, this provision will harm families and disrupt the U.S. residential real estate industry and the well-being of local communities.”

Other trade groups co-signing the letter included the American Land Title Association; America’s Homeowner Alliance; Community Mortgage Lenders of America; Consumer Mortgage Coalition; Habitat for Humanity; Independent Community Bankers of America; Leading Builders of America; RESPRO; and the Realty Alliance. 


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