REALTORS® took their concerns over tax reform proposals to Capitol Hill on Wednesday, with Iona Harrison, chair of the National Association of REALTORS®’ Federal Taxation Committee, warning the Senate Finance Committee that they limit or nullify the tax incentives for homeownership. Harrison said the proposals would actually raise taxes on millions of middle-class homeowners and reminded senators that a drop in home values following tax reform is a significant risk.
|Representatives from the National Association of REALTORS® testified in front of the Senate Finance Committee on Wednesday about the possible negative consequences tax reform could have on homeownership.|
“Real estate is the most widely held category of assets that American families own, and for many Americans, it’s the largest portion of their family’s net worth,” Harrison testified, adding that 64 percent of American households are owner-occupied. “We believe that homeownership is not a special interest, but is rather a common interest.”
Although there is currently no legislation on the table to reform the tax code, concepts have emerged over the past year that would affect homeownership. Changes being considered include the elimination of the federal tax deduction for state and local taxes, a proposal to double the standard deduction—which would effectively nullify the value of the mortgage interest deduction for all but the highest-earning families—and a cap on the amount of mortgage interest that could be deducted.
Some critics of the real estate deductions claim they benefit only a small number of wealthy individuals. But during Harrison’s testimony, she presented some of the following data to show that the deductions are important for a large number of homeowners:
- 70 percent of the value of real property tax deductions in 2014 went to taxpayers with incomes less than $200,000.
- 53 percent of individuals claiming the itemized deduction for real estate taxes in 2014 earned less than $100,000.
- 32.7 million tax filers claimed a deduction for mortgage interest in 2015.
- Half of taxpayers with mortgages of more than $500,000 have an adjusted gross income of less than $200,000, according to research conducted for NAR.
Harrison also reminded the Senate Financing Committee that tax reform in the past has brought unintended consequences for the economy. In 1986, Congress eliminated or significantly changed several tax provisions, including within real estate, in order to lower rates. But five years later, in 1991, the rates were increased. “Most of the eliminated tax provisions never returned, and in the case of real estate, a major recession followed,” Harrison said.
Though NAR supports tax reform, the association has said any effort must protect homeownership incentives. “Homeowners already pay 83 percent of all federal income taxes, and reform that raises their taxes is a failed effort,” Harrison testified. “NAR supports the goals of simplification and structural improvements for the tax system, and individual tax rates should be as low as possible while still providing for a balanced fiscal policy. We simply believe that to achieve these goals, Congress should commit first to doing no harm to the common interest that homeownership provides.”