Both the House and Senate are currently working on a “Tax Cuts and Job Acts” tax reform plan. The House and the Senate each have a version they are trying to enact and there are many similarities, but also some important differences in these proposals. If you are a homeowner, you should be aware of what is being proposed in these plans.
Let’s start with the Senate’s version of tax reform as it relates to homeowners. The proposed legislation retains the current mortgage interest deduction level and doubles the standard deduction. It limits the Capital gains Exemption on the sale of a primary residence and would require a homeowner to live in the property 5 out of 8 years to qualify for the exemption. The current rules only require 2 out of 5 years. This would have a significant impact on anyone who would need to move within 5 years of a purchase. This proposal also would eliminate the interest deduction on home equity loans, all state and local taxes (including property taxes) and moving expenses (unless they are related to the military).
The current version of the House’s plan has many things in common with the Senate’s plan: the same change in the Capital Gains Exemption from 2 out of 5 years to 5 out of 8 years, increases the standard deduction, eliminates the deduction for state and local taxes but keeps the property tax deduction limited to $10,000 and eliminates the deduction for moving expenses. In addition, this version seeks to cap the mortgage interest deduction at $500,000 for new mortgages, eliminates the mortgage interest deduction entirely for second homes, and eliminates the interest on student loans deductions, medical expense deductions and personal casualty losses such as floods or hurricanes.
This proposed legislation could seriously impact homeowners and will almost completely wipe out all the tax benefits currently associated with home
ownership. In addition, if you are unable to stay in your home for at least 5 years you would not be entitled to a capital gains exemption on the sale of that home. As you all know, there are always life events that you don’t plan for that can necessitate a move- death, divorce, illness, job change, growing families- just to name a few. There could be significant tax consequences involved in such a sale that could create a real financial hardship. In addition, the proposed elimination of the mortgage interest deductions and the property tax deductions could significantly impact the value of homes and the housing market itself. For these reasons, the National Association of Realtors has opposed both of these plans in their current form. The NAR is a non- partisan group that advocates on behalf of home ownership. After studying the proposed changes, they have concluded that it presents a danger to homeownership. After researching the proposals of both the House and the Senate, make your opinions known to your state Representatives and make sure that they are voting in your best interest. Homeownership is a cornerstone of our economy and we need to make sure we preserve it for generations to come.