It’s going to cost a lot more to own a home in luxury lakefront neighborhoods such as the Gold Coast, Lincoln Park, Lake View and Edgewater in 2018 after Congress passes tax reform legislation in the next few weeks.
Tax reform legislation proposed by the House takes a historic step in directly revising the mortgage-interest deduction—a $70 billion annual tax expenditure.
The proposed legislation, entitled the Tax Cuts and Jobs Act, nearly doubles the standard deduction for middle-class families and makes no changes to the way 401(k) plans are treated pretax.
However, for homeowners and future home buyers, it’s not all good news. That’s because luxury homeowners and buyers are likely to lose important tax breaks for mortgage-interest deductions and write-offs for real estate taxes under both the House and Senate bills currently being debated in Congress.
Under the House tax reform bill, existing homeowners can keep their existing mortgage interest deductions, but purchases that are made moving forward will be capped for homes valued at up to $500,000, and limit the deduction to $10,000 for property taxes.
Limiting the real estate tax deduction could cut $10,000 to $15,000 in write offs for a $1-million homeowner in Lincoln Park with a current property tax bill of $20,000 to $25,000, experts said.
The Senate version of the tax reform bill would keep the current cap on mortgage-interest deductions for homes valued up to $1 million, but eliminate the real estate tax deduction.
“The House legislation closely tracks with the Republican Blueprint for tax reform, which threatens home values and takes money straight from the pockets of homeowners,” said Bill Brown, president of the National Association of Realtors (NAR).
“Realtors believe in the promise of lower tax rates, but this bill is nowhere near as good a deal as the one middle-class homeowners get under current law,” Brown said. “Tax hikes and falling home prices are a one-two punch that homeowners simply can’t afford.”
“The House Republican tax-reform plan abandons middle-class taxpayers in favor of high-income Americans and wealthy corporations,” said Granger MacDonald, chairman of the National Association of Home Builders (NAHB). “The bill eviscerates existing housing tax benefits by drastically reducing the number of homeowners who can take advantage of mortgage interest and property tax incentives.”
Lobbyists for the NAHB said capping mortgage interest at $500,000 for new-home purchases means that home buyers in expensive markets such as Chicago, New York and California will effectively lose this housing tax benefit moving forward.
“The House leadership killed a cost-effective plan proposed by NAHB that Ways and Means Committee leaders agreed to include in the legislation,” said MacDonald. “It would have provided a robust homeownership tax credit that would have helped up to 37 million additional homeowners who do not currently itemize.”
“Any tax reform change that makes home-buying 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,” McIntosh noted.
The House bill also cuts the corporate tax rate to 20 percent from 35 percent. “While corporations will receive a major tax cut, small businesses, which generate the lion’s share of job growth, get limited relief,” MacDonald said.
“Congress is ignoring the needs of America’s working-class families and small businesses, and by undermining the nation’s longstanding support for homeownership and threatening to lower the value of the largest asset held by most American families,” MacDonald said.
“This tax reform plan will put millions of homeowners at risk.”
“That expenditure primarily benefits higher-income households—including the top 1 percent of earners in the country,” said Diane Yentel, president and CEO of the National Low Income Housing Coalition.
Yentel urged Congress to reinvest the savings from the mortgage-interest deduction reform into affordable housing solutions, like the national Housing Trust Fund, rental assistance, or a renter’s credit.
“That would help the lowest income people in America—including seniors, people with disabilities, families with children, and other vulnerable populations—who too often struggle to pay the rent and make ends meet,” she said.
For more housing news, visit www.dondebat.biz. Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit www.escapingcondojail.com.