"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," said NAR President Bill Brown.
The proposed reform would reduce the number of individual tax brackets from seven to four, and no company of any size would pay more than 15 percent of business income in taxes.
President Donald Trump released his tax reform plan today, which will result in what the White House is calling the “biggest tax cut” in history.
In response, the National Association of Realtors (NAR) had this to say in a statement: “Major reforms are needed to lower tax rates and simplify the tax code but shouldn’t come at the expense of current and prospective homeowners.”
NAR attributed the statement to President William E. Brown, who wrote today that “while the President’s tax proposal released today is well-intentioned, it’s a non-starter for homeowners and real estate professionals who see the benefits of housing and real estate investment at work every day.
“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.”
What the plan says
Trump proposed the following tax reforms in his campaign document. (This document is not the final tax plan, which hasn’t been publicly released; the highest bracket in the new plan is 35 percent for taxpayers.)
There will be four tax brackets instead of seven — including one bracket for citizens who are single and earn less than $25,000/year or who are married and jointly earn less than $50,000/year. These people won’t owe income tax at all.
There will be three tax brackets for people who earn $25,000/year (or $50,000/year jointly) or more. Citizens will pay 10 percent, 20 percent or 25 percent on income tax, and no more than 25 percent.
“No business of any size, from a Fortune 500 to a mom and pop shop to a freelancer living job to job, will pay more than 15 percent of their business income in taxes,” states the plan.
“With this huge reduction in rates, many of the current exemptions and deductions will become unnecessary or redundant,” states the plan.
“Those within the 10 percent bracket will keep all or most of their current deductions. Those within the 20 percent bracket will keep more than half of their current deductions. Those within the 25 percent bracket will keep fewer deductions. Charitable giving and mortgage interest deductions will remain unchanged for all taxpayers,” it added.
If mortgage interest deductions are still protected, then why is NAR speaking out against the tax reform proposal?
Because it would also eliminate many tax incentives, including those for first-time homebuyers. (Starting to see why NAR isn’t pleased?)
And the plan also “reduces or eliminates loopholes used by the very rich and special interests made unnecessary or redundant by the new lower tax rates on individuals and companies” — so presumably, the deduction reductions and loophole eliminations would help pay for the tax cut without causing a deficit.
Brown noted in his statement that “real estate now accounts for over 19 percent of America’s gross domestic product, or more than $3 trillion in investment.”
However, he added, “for roughly 75 million homeowners across the country, their home is more than just a number. It represents their ambitions, their nest egg, and the place where memories are made with family and friends.”
A few of the targeted tax incentives currently in place that help people achieve the dream of homeownership — besides the mortgage interest deduction — include:
State and local tax deductions, which “make homeownership more affordable,” according to Brown
1031 like-kind exchanges, which “help investors keep inventory on the market and money flowing to local communities”
“Those tax incentives are at risk in the tax plan released today,” Brown added. “Current homeowners could very well see their home’s value plummet and their equity evaporate if tax reform nullifies or eliminates the tax incentives they depend upon, while prospective homebuyers will see that dream pushed further out of reach.
“As it stands, homeowners already pay between 80 and 90 percent of U.S. federal income tax. Without tax incentives for homeownership, those numbers could rise even further. And while we appreciate the Administration’s stated commitment to protecting homeownership, this plan does anything but.
“Homeowners put their hard-earned money on the line to make an investment in themselves and their communities, and it’s on them to protect that investment. Common sense says owning a home isn’t the same as renting one, and American’s tax code shouldn’t treat those activities the same either.”
Brown added that “it’s encouraging to see leaders in Washington doing their part” to reform taxes, which NAR supports through lowering tax rates “to the degree that sound fiscal policy allows” and simplifying the tax code, which will “help ensure fairness and transparency for individual taxpayers.
“It’s a goal we share with the authors of this tax plan,” he added, “but getting there by eliminating the incentives for home ownership is the wrong approach. We look forward to working with leaders in Congress and the administration to reform the tax code, while preserving America’s long-held commitment to home ownership.”