By Susanne Dwyer
Members of the real estate industry are responding to the passage of the Senate tax plan, which chiefly includes a 20 percent corporate tax rate—down from 35 percent—and reduced rates for families and individuals over the next seven years. The development follows the House passage of its own plan in November.
Both bills challenge homeownership, industry members say. The bills extend the capital gains exclusion eligibility requirement that home sellers reside in the home from two of the last five years to five of the last eight. (The House plan, however, includes an income phaseout provision.) Both also raise the standard deduction, which has the potential to render the mortgage interest deduction (MID) useless.
“If eligibility rules for excluding the sale of a home from capital gains taxes are changed from requiring living in your home for two of the past five years to five of the past eight, selling the median U.S. home after four years of ownership would mean $2,363 in taxes, from $0 currently,” according to Skylar Olsen, senior economist at Zillow. An analysis recently released by Zillow reveals homeowners in high-priced markets would bear the brunt of costs from the lengthened tenure.
The MID itself is addressed in both plans, as well. The House plan caps the MID for new loans at $500,000 (and only for primary residences), whereas the Senate plan retains the current cap of $1 million.
Additionally, both bills cap local and state property tax deductions at $10,000.
According to the National Association of REALTORS® (NAR), the industry’s largest organization, homeownership incentives are jeopardized in the Senate plan.
“The tax incentives to own a home are baked into the overall value of homes in every state and territory across the country,” said NAR President Elizabeth Mendenhall in a statement. “When those incentives are nullified in the way this bill provides, our estimates show that home values stand to fall by an average of more than 10 percent, and even greater in high-cost areas. REALTORS® support tax cuts when done in a fiscally responsible way; while there are some winners in this legislation, millions of middle-class homeowners would see very limited benefits, and many will even see a tax increase. In exchange for that, they’ll also see much or all of their home equity evaporate as $1.5 trillion is added to the national debt and piled onto the backs of their children and grandchildren. That’s a poor foot to put forward, but this isn’t the end of the road. REALTORS® will continue to advocate for homeownership and hope members of the House and Senate will listen to the concerns of America’s 75 million homeowners as the tax reform discussion continues.”
“It’s time for homeowners to pay attention,” concurred Danielle Hale, chief economist of realtor.com®, in a statement. “While the House and Senate still need to agree to a single version of the tax plan, they are already aligned on provisions that take away homeownership incentives for the majority of owners, which we expect
From:: Finance and Economy
