Finally, the current administration’s tax reform plan is out and aims to preserve the homeownership tax deduction or the mortgage interest deduction.
While the MID is safe from the current administration’s chopping block, realtors and builders raise concerns over parts of the proposed reform that could affect the MID and homeownership essentially, Forbes reported.
Protect the Home Ownership
Dubbed as “the biggest individual and business tax cut in American history,” Trump’s tax reform was outlined in a one-page memo with Treasury Secretary Steve Mnuchin and top economic adviser Gary Cohn fielding questions from the press Wednesday.
One pillar of President’s tax reform is to simplify the tax code. This “simplification” includes the preservation of the homeownership tax deduction.
The mortgage interest deduction is used by homeowners with mortgage debt including home equity debt of up to $1.1 million, deducting the interest they paid on their mortgages from their taxable income to lower their taxes.
To qualify for the MID, the taxpayer should itemize his/her tax deductions. Under the same tax plan, the Trump admin wishes to (i) repeal local and state deduction and (ii) double the standard deduction (for those who don’t wish to itemize their deductions).
At the Expense of Homeowners
“By doubling the standard deduction and repealing the state and local tax deduction, the plan would effectively nullify the current tax benefits of owning a home for the vast majority of tax filers,” according to the National Association of Realtors’ press statement.
In the statement, NAR President William E. Brown recognized the need to lower taxes and simplify the code but not “at the expense of current and prospective homeowners.”
“The mortgage interest deduction and the state and local tax deduction make homeownership more affordable, while 1031 like-kind exchanges help investors keep inventory on the market and money flowing to local communities,” Mr. Brown pointed out.
National Association of Home Builders Chairman Granger MacDonald separately commented, “Doubling the standard deduction could severely marginalize the mortgage interest deduction, which would reduce housing demand and lead to lower home values.”
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Here’s the White House memo on the tax reform unveiled Wednesday:
2017 Tax Reform for Economic Growth and American Jobs
“The Biggest Individual And Business Tax Cut in American History”
Goals for Tax Reform
- Grow the economy and create millions of jobs
- Simplify our burdensome tax code
- Provide tax relief for families — especially middle-income families
- Lower the business tax reform from one of the highest in the world to one of the lowest
Tax relief for American families, especially middle-income families:
- Reducing the 7 tax brackets to 3 tax brackets of 10%, 25% and 35%
- Doubling the standard deduction
- Providing tax relief for families with child and dependent care expenses
- Eliminate targeted tax breaks that mainly benefit the wealthiest taxpayers
- Protect the home ownership and charitable gift tax deductions
- Repeal the Alternative Minimum Tax
- Repeal the death tax
Repeal the 3.8% Obamacare tax that hits small businesses and investment income
- 25% business tax rate
- Territorial tax system to level the playing field for American companies
- One-time tax on trillions of dollars held overseas
- Eliminate tax breaks for special interests
- Throughout the month of May, the current administration will hold listening sessions with stakeholders to receive their input and will continue working with the House and Senate to develop the details of a plan that provides massive tax relief, creates jobs, and makes America more competitive – and can pass both chambers.
Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.