The National Association of Realtors continues to fight against the House Republican’s newly released tax reform plan, which passed through the Ways and Means Committee last week, and will soon move to a full House vote.
The Tax Cuts and Jobs Act will slash the mortgage interest deduction in half from $1 million to $500,000, double the standard deduction and reduce the capital gains exemption, allowing homeowners to deduct profits from a home sale only once every five years, instead of two.
Previously, NAR explained this tax reform would leave homeowners worse off than they are today, and now the association sent a letter to Congress, explaining how the plan would do just that.
“On behalf of the 1.3 million members of the National Association of Realtors, I want to express the Association’s strong opposition to H.R. 1, The Tax Cuts and Jobs Act as currently drafted,” NAR President Elizabeth Mendenhall wrote in a letter to Congress. “NAR supports tax reform’s goal to spur greater economic growth, but Realtors believe this bill would push the housing sector, which represents a sixth of the economy, in the opposite direction.”
NAR explained in its letter, addressed to the U.S. House of Representatives, that H.R. 1 would reverse a century’s worth of tax policy that has recognized the value of homeownership.
“Homeownership is not a special interest, it is our common interest, yet this legislation would place the American Dream further out of reach for millions of Americans at a time when our homeownership rate is at a 50-year low,” Mendenhall wrote. “In short, this bill is a serious step in the wrong direction.
The letter breaks down specific scenarios in which renters would be deterred and even lose money by buying a home instead of renting.
Here are some of the situations NAR points out in its letter, using the same family of four making $59,000 a year scenario used by proponents of the plan:
The family is renting a home, based on the facts presented, and is to receive a tax cut of $1,182 the first year after enactment. What is not highlighted, however, is that if this family owned a home with a typical mortgage for their income level, the tax savings would be only $761, a drop of 36%.
Increasing the family’s income to $73,000 a year shows the renting family receives a tax cut of $1,478 under the bill, but the home-owning family would get a refund of just $674, less than half what the same family would receive as renters.
Increasing the family’s income to $120,000 per year shows as renters, they would receive a tax cut under H.R. 1 of $3,408. However, as homeowners with a typical mortgage in a typical average-cost state, they would have a tax increase of $226.
“To make things worse, the relatively small tax cuts that many middle-class homeowners receive from this proposal would vanish after just a few years,” NAR explained in its letter. “Based on the CBO’s June forecast of inflation, income growth, and 10-year Treasury rates, coupled with the expiration of the family flexibility credit, most middle class families would see their modest tax cuts transform to tax increases under the plan compared to current law after five years. NAR does not believe vanishing tax cuts, coupled with vanishing home equity, is a formula for growing our economy.”
The association concluded by urging members of the House to create a bill that recognizes the importance of homeownership in the economy, and not try to “ram through a bill that has seen minimal public debate.”
The Mortgage Bankers Association also recently sent a letter to Congress, addressed to Kevin Brady, R-Texas, chairman of the House Committee on Ways and Means, and Richard Neal, D-Mass., ranking member of the House Committee on Ways and Means. The MBA’s letter explained the changes to the mortgage interest deduction would erode homeownership incentives for too many Americans.