The House passed the federal Tax Reform bill by a 224 to 201 margin and the bill is awaiting the president’s signature. NAR launched a campaign raising objections about the proposals, arguing those proposals threatened home values, eliminated the tax incentives to own a home for homeowners and potentially raised taxes on many middle-class families.
“We saw record numbers of Pennsylvania Realtors® responding to NAR’s Call-for-Action on the tax reform issue,” said PAR President Kathy McQuilkin. “We’re grateful that so many Realtors® contacted their congressmen to let them know how this reform would affect homeowners, future homebuyers and home values.”
NAR President Elizabeth Mendenhall said, “The results are mixed. We saved the exclusion for capital gains on the sale of a home and preserved the like-kind exchange for real property. Many agents and brokers who earn income as independent contractors or from pass-through businesses will also see a significant deduction on that business income.
“Despite these successes, we still have some hard work ahead of us. Significant legislative initiatives often require fixes to address unintended consequences, and this bill is no exception,” she added.
Last-minute changes to the bill include:
- Capital gains exclusion. In a huge win for current and prospective homeowners, current law is left in place on the capital gains exclusion of $250,000 for an individual and $500,000 for married couples on the sale of a home. Both the House and the Senate had sought to make it much harder to qualify for the exclusion.
- Mortgage interest deduction. The maximum mortgage amount for households deducting their mortgage interest has been decreased to $750,000 from the current $1 million limit. The House bill sought a reduction to $500,000.
- State and local tax deductions. Both property taxes and state and local income taxes remain deductible, although with a combined limit of $10,000. Both the House and Senate bills sought to eliminate the state and local income tax deduction altogether.
- Pass-through entities. The bill significantly reduces the effective rate of tax on business income earned by independent contractors and income received from pass-through entities. This change will lower the taxes of many real estate professionals.
NAR’s comprehensive report summarizing the changes affecting real estate is available at NAR.realtor/taxreform.