Tag Archives: taxes

Mortgage Interest Deduction Capped in Proposed Tax Overhaul

Source: RISMedia / Jameson Doris

After weeks of debate, Republican lawmakers have finally revealed their legislation for a major tax overhaul, the largest to be proposed in decades. The bill, 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, but for REALTORS® and the consumers they serve, it’s not all good news.

Last June, House Speaker Paul Ryan warned that he would likely be unable to save all of the tax incentives that REALTORS® view as vital, The Wall Street Journal reported. We now know exactly what the Republicans were unable to salvage. Under their bill, existing homeowners can keep their mortgage interest deduction, but purchases that are made moving forward will be capped at $500,000. The bill also cuts the corporate tax rate to 20 percent (from 35 percent), as reported by The New York Times on Thursday.

“This legislation closely tracks with the House Republican Blueprint for tax reform, which threatens home values and takes money straight from the pockets of homeowners,” said National Association of REALTORS® (NAR) President Bill Brown in a statement. “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. 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), in a statement. “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. Capping mortgage interest at $500,000 for new-home purchases means that homebuyers in expensive markets 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,” MacDonald said. “It would provide a robust homeownership tax credit that would have helped up to 37 million additional homeowners who do not currently itemize. Most of them are low- and moderate-income homeowners. Meanwhile, as corporations receive a major tax cut, small businesses, which generate the lion’s share of job growth, get limited relief. The bottom line: 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, this tax reform plan will put millions of homeowners at risk.”

“The tax reform legislation proposed by House Republican leaders takes a historic step in directly revising the mortgage interest deduction (MID), a $70 billion annual tax expenditure that 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 (NLIHC), in a statement. “The Republican tax proposal makes sensible reforms in lowering the amount of a mortgage against which the MID can be claimed to $500,000 for new-home loans and doubling the standard deduction. This change to the MID would impact fewer than 6 percent of mortgages nationwide and would save an estimated $95.5 billion over the first decade; however, the legislation uses the savings generated by the MID reform to pay for lower tax rates for billionaires and corporations without addressing the affordable housing crisis in America. This proposal is a non-starter.

“Instead, Congress should reinvest the savings from the MID 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.

“The National Low Income Housing Coalition has significant concerns with other provisions in the overall tax bill and further analysis is needed to determine the impact,” Yentel said.

The California Association of REALTORS® (C.A.R.) echoed similar concerns. “We are currently reading through the bill proposed [on Thursday] to determine the exact impact it will have on California homeowners and its housing market,” said C.A.R. President Geoff McIntosh. “From what we have seen so far, limiting the mortgage interest deduction to $500,000 will no doubt hurt homeownership in states with high housing costs such as California.

“Any change that would make 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 added.

It’s important to keep in mind, however, that this legislation will be aggressively contested and debated over the next several weeks as Republicans fight to have a finalized version on President Trump’s desk by Christmas. That version stands to be unrecognizable to what was announced today, due to battles various lobbying groups are about to wage.

NAR had already begun fighting before the legislation was announced. Recently, the Association deployed digital ads in every district of House Ways and Means Committee members asking constituents in those areas to remind their lawmakers not to “let tax reform become a tax increase for middle class homeowners.”

The Association has now announced that it will expand these efforts to Senate Finance Committee members’ states by the end of the week.

In the immediate future, things will move rapidly and countless groups will come forward to have their opinions heard. This is one area where NAR has a distinct advantage. Not only does it carry the influence of being the largest association; it also represents one of the most coveted voting blocs in the country: homeowners.

Who Pays the Highest Property Taxes?

Source: NAR

 

The average median property tax rate across the nation is 1.31 percent. That means a home owner with a home valued at $200,000, on average, pays an annual amount of $2,620 in property taxes, according to an analysis by CoreLogic’s data team.

Illinois has the highest median property tax rate at 2.67 percent. Hawaii, on the other hand, has the lowest at 0.31 percent.

Read more: The Property Tax Factor

“While higher median tax rates are seen primarily among states in the northeast, a notable exception is Texas, which has a median property tax rate of 2.17 percent,” CoreLogic reports. “Typically, the states with the highest property tax rates, with the exception of Illinois, have multiple levels of tax collection. Conversely, the majority of states with low median tax rates have a single level of collection at the county level. Other than Hawaii, the lowest median property tax rates are primarily in the Rocky Mountain region and southeastern states.”

CoreLogic calculated the median overall property tax rates nationally by state. Researchers took into account all taxing and collection entities. Take a look at the chart below to see how your state ranks.propertytax

 

The Most Valuable Tax “Loophole” Available Today

By Brett Eversole, analyst, True Wealth Systems
Friday, February 13, 2015

The government seems to spend its time finding ways to increase taxes…

In 2013, income taxes for America’s top earners increased. And in last month’s State of the Union address, President Obama proposed capital gains tax increases among other changes.

The only things certain in life are death and taxes, as the saying goes. But if you haven’t already, you can still take advantage of one of the most powerful tax loopholes available… your home.

For most individuals, buying a home is a powerful tax shelter. In fact, I can’t think of an asset that has more government incentives than the home you live in.

Let me show you what I mean…

First, you can deduct the interest on your mortgage off your taxes. You can also deduct certain other expenses, like insurance and property taxes. Depending on your income tax bracket, this could lead to tax savings of a few hundred dollars a month.

But that’s the small stuff. The major tax advantage comes when you sell your home…

This is probably the best tax loophole available today… The government allows you to keep up to $500,000 in capital gains, tax-free. (Depending on your filing status.)

That’s not a typo. If you’re married, you can keep up to half a million dollars in profit on your home sale without having to pay any capital gains taxes. And that benefit could have a massive positive effect on your net worth.

For example, say John buys a $250,000 home and Jill buys $250,000 in stocks and bonds. After 20 years, both have increased in value to $750,000 – a $500,000 increase.

When John sells his home, he pays no taxes. He walks away with the full $750,000. Jill, on the other hand, has to pay capital gains taxes on the $500,000 she gained. Today, that would leave her owing 20% to the government – or $100,000.

Jill would walk away with just $650,000… 13% less than John.

This is truly the most valuable tax loophole available today. And all you need to do to take advantage of it is own a home.

Importantly, buying a home is still a good investment decision today. Housing is still incredibly affordable… and that means higher prices are likely from here.

We’ve written about housing affordability many times in DailyWealth. It’s a simple idea…

Housing affordability compares three things… income, home prices, and mortgage rates. These three factors tell us if typical incomes can pay for typical mortgage payments.

Today, affordability sits well above its historical average. Home prices would need to rise around 30% for affordability to move back to normal.

This tells us that there is still upside in U.S. housing. And that the most valuable tax loophole available is still a prime opportunity.

If you don’t already own a home, it’s a tax loophole you should consider today.

Good investing,

Brett Eversole