House Republicans were to unveil a tax overhaul plan on Wednesday, but as members worked out final details the deadline for the release of information on the proposed legislation shifted to Thursday.
REALTORS® are eager to see the plan because of the far-reaching implications it might have for homeownership and the real estate industry as a whole.
The Senate version of the plan could come next week, and is likely to contain many differences from what the House proposes. Here are three things to look for as the details come into focus.
Mortgage Interest Deduction
For decades MID has been a bedrock of the federal tax code, relied on by homebuyers nationwide as a way to get a break on taxes. It encourages homeownership, particularly for first-time homebuyers. Here’s why this matters, according to NAR:
“The major beneficiaries of the MID are not the rich, but young, middle-class families with children who are already carrying more than their fair share of the tax burden. Of all the people who claimed the MID in 2013, 55% earned less than $100,000 and 88% earned less than $200,000.“
What could happen?
- The MID could be eliminated, something that would be hugely unpopular with property owners who have come to rely on the tax break.
- The standard deduction could be increased. This would eliminate the need by many to itemize their taxes and claim the deduction, in effect watering down MID’s impact as an economic driver and catalyst for homeownership. Under one proposal, the standard deduction for married couples filing jointly could climb to $24,000 from $12,700 now.
What about SALT?
State and Local Tax Deductions (SALT) are a big deal in Illinois. After all, we have some of the largest tax bills in the nation. If the deduction is eliminated, that would really hurt property owners.
There are a number of possible scenarios, here. Homeowners might be able to write off property taxes, but not income or sales taxes. There might be a choice of of taking the MID or SALT. There could be limits on what could be written off on taxes.
Again, raising the standard tax deduction might address some of the problem, but because of the state’s high taxes it might not address all of the tax burden here.
1031 Like-Kind Exchange
Many Americans take advantage of the 1031 Like-Kind Exchange as a way to build businesses and boost the economy. This tax provision allows deferral of taxes on a property sale providing that the money is immediately re-invested in other property.
This might seem more applicable to financiers, but it isn’t. In fact, even relatively small business owners and farmers use portion of the tax code. It’s another basic building block of tax code which allows for economic growth.
Are there other things to watch?
Remember, even a simplified federal tax code will have thousands of pages of rules, and many of these rules could touch on the real estate business. But these three items are big for REALTORS® and their clients.