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Call-For-Action: Keep The Homeownership Incentive

posted Nov 6, 2017, 10:45 AM by Joyce Evans   [ updated Nov 9, 2017, 10:51 AM ]
By Sarah Heck, PSAR 2018 President
 
Proposed tax reform currently under discussion by Congress calls for careful consideration by local real estate professionals and Pacific Southwest Association of REALTORS® members. Lawmakers are discussing the biggest overall of the U.S. tax code in three decades. Tax reform is important but it should do no harm.
 
The plan would immediately slash the corporate tax rate to 20 percent from 35 percent and streamline and simplify a loophole-cluttered tax code for individuals from seven brackets to four to help lower effective tax rates. In addition, overall tax savings would be realized with the doubling of the standard deduction for couples from $12,700 to $24,000 per family. Popular 401(k) retirement savings plans used by many Americans would be unchanged. The bill also would increase the child tax credit from $1,000 per child to $1,600. The plan also lowers inheritance taxes on large estates.
 
However, also proposed would be the end of write-offs of state and local income or sales taxes. In addition, mortgage interest deductions for new loans would be limited to no more than $500,000, down from the current $1 million. Deductions for second homes would no longer be allowed and property tax deductions would be capped at $10,000. If passed into law, the tax changes would not affect existing mortgages under contract.
 
Our colleagues at the National Association of REALTORS® (NAR) and California Association of REALTORS® (C.A.R.) say the proposals would amount to a tax increase on the middle class based on the elimination of the state and local tax deductions. They also say that limiting tax incentives for homeownership would lead to lower home prices, which probably would be welcomed by many first-time buyers in California.
 
Still others, including economists at the USC Lusk Center for Real Estates, say the market is too hot and the difference in tax savings is small enough that the overall impact on the housing market would probably be muted, especially for buyers of homes priced at several million dollars or higher.
 
Reducing the mortgage interest deduction could potentially take away a major selling point for buyers of luxury homes and second homes. It’s likely the trade-off between reducing tax rates while curtailing deductions means the impact could vary widely from one family to another. For example, families making less than $86,100 would get a tax cut. Many Americans who need to take out big loans to buy homes in the most expensive areas, such as New York, Boston and San Francisco, could see their taxes going up.  The plans sets a 25 percent tax rate starting at $90,000 for married couples, with a 35 percent rate at $260,000, which means many upper-income families whose rate is 33 percent would face higher taxes.
 
Meanwhile, NAR has launched a “Call to Action” campaign for all PSAR members and REALTORS® because threatening the property tax deduction could eliminate the time-honored tax incentives of owning a home for 95 percent of current and prospective homeowners. That incentive is critical for a strong housing market that creates jobs and builds stable communities. Eliminating or nullifying the tax incentives for homeownership puts home values and middle class homeowners at risk, said William Brown, NAR president. NAR also says it could lower the value of all homes by more than 10 percent and damage growth causing America to turn from a home-owning nation to a home-renting nation.
 
Homeowners must be treated fairly in tax reform. Homeowners already pay 83 percent of all federal income taxes, and homeowners should not have to pay more taxes so corporations can pay less. We cannot afford another housing crash. After the 1986 Tax Reform Act, property values in the commercial sector dropped significantly, negatively impacting state and local revenue. Homeownership is the gateway to wealth building for millions of middle-class Americans.
 
Letters that can be sent to members of Congress calling to reform our tax code and protect middle class homeowners can be found at www.NAR.com. More information also is available at www.car.org/difference/getinvolved/taxreform. Visit the PSAR website to learn how tax reform could mean that California homeowners would pay $3,000 more a year in taxes, www.psar.org/announcements/californiahomeownerswillway3000moreayearintaxes.
 
“Any change that would make homebuying less attractive will be detrimental to the housing industry and the nation’s economy because of the 2.5 million private-sector jobs created by the industry in an average year,” said C.A.R. President Geoff McIntosh.