David McClintock: Tax reform proposal an attack on homeowners

Homeownership, which has been a driver of our nation’s economy for more than a century, would be threatened as the result of “The Tax Cuts and Jobs Act” that was passed by the US House of Representatives.

Not only will millions of homeowners not benefit from the proposal, but many would get a tax increase.

Additionally, homeowners could lose substantial equity from the more than 10% drop in home values likely to result if the bill is enacted as drafted.

In a letter to the nation’s legislators, The National Association of Realtors stated that “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. In short, the bill is a serious step in the wrong direction.”

Provisions in the bill include limiting the deductibility of interest on new mortgage loans up to $500,000, cap property tax deductibility at $10,000 for those who still itemize, eliminate the deduction altogether for second homes, and restrict the utility of the exclusion of capital gains on the sale of a home.

The bottom line is that, for tax purposes, owning a home would make less financial sense than renting for the great majority of Americans.

A typical family of four renting a home and making $59,000 a year would receive a tax cut of $1,182 in the first year after enactment. The same family that owns a home with a typical mortgage would only realize a tax savings of $761.

That difference widens quickly as the income gets higher until there is no tax savings at all.

At an annual income of $120,000, that same family of four as renters would receive a tax cut 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 in just a few years.

Besides eliminating the current tax advantages of homeownership, the bill actually encourages renting by allowing investors in residential property to continue to be eligible for full deductions of all interest and property taxes.

The National Association of Realtors states that currently homeowners pay 83 percent of all Federal income taxes.

This percentage is likely to increase significantly under the Tax Cuts and Jobs Act in its current state.

At the same time, long standing federal tax policy that recognizes the importance of homeownership to our nation would be eliminated for all but a fortunate few.

• David McClintock is the Chief Executive Officer of the Three Rivers Association of Realtors