The House tax reform bill just passed—here’s what it means for housing


The House of Representatives passed its version of tax reform on a largely party-line vote on Thursday, approving $ 1.5 trillion in tax cuts and bringing sweeping changes to a number of housing measures one step closer to reality.

The bill passed 227 to 205 with no Democrats voting for the bill and 13 Republicans voting against it. Many of the Republicans who voted against it oppose the bill’s elimination of state and local tax deductions and the cap on property tax deductions of $ 10,000. Republicans from districts with high property values, in states such as New York and New Jersey, had expressed previous opposition to the bill.

While the Senate bill proposes very few changes related to housing measures, the House bill makes adjustments to the mortgage interest deduction, the Historic Tax Credit (HTC), and the Low-Income Housing Tax Credit (LIHTC), in addition to changes in the corporate tax rate, private activity bonds, and the standard deduction that indirectly impact these measures.

Current law allows taxpayers to deduct mortgage interest from their taxable income on interest up to $ 1 million in property value. The House bill lowers the cap to $ 500,000.

Potentially more impactful to the mortgage interest deduction is the bill’s proposal to double the standard deduction from $ 6,350 for individuals and $ 12,700 for married couples to $ 12,000 for individuals and $ 24,000 for joint filers.

The Tax Policy Center estimates this would cause the number of taxpayers who itemize their taxes to drop from 45 million to 18 million because millions would take the newly raised standard deduction instead, thus keeping untold millions from foregoing the mortgage interest deduction.

The National Association of Home Builders and the National Association of Realtors—2 powerful housing lobbies—have previously expressed opposition to the House bill over the weakened mortgage interest deduction, a deduction they claim is crucial for the middle class. However, the lowered cap on the mortgage interest deduction would affect mostly wealth homeowners in coastal cities.

The Historic Tax Credit, which provides incentives for the rehabilitation and preservation of historic buildings, is outright repealed in the House tax reform bill. Since the its inception in 1981, the HTC program has been used to renovate more than 40,000 structures and provided $ 117 billion in private investment toward the cause. The repeal would raise less than $ 1 billion annually.

Affordable housing advocates previously expressed opposition to the House tax reform bill over indirect changes to the Low-Income Housing Tax Credit, which incentivizes private investment in affordable housing for low-income Americans. While the bill explicitly retains LIHTC, it repeals any use of tax-exempt private activity bonds, which are used in as many as 60 percent of LIHTC development projects.

The bill also cuts the corporate income tax rate from 35 to 20 percent, which experts claims will lower the amount of equity developers are able to raise for all LIHTC projects, whether they use private-activity bonds or not. This would lead to fewer new affordable housing units produced by the program.

While the House’s tax reform bill was expected to pass despite opposition from some blue state Republicans, the fate of the Senate bill is much less certain. Wisconsin Senator Ron Johnson is publicly opposed to the bill. Senators John McCain, Susan Collins, and Lisa Murkowski—who torpedoed Republican attempts to repeal the Affordable Care Act—have yet to take a public stand on the bill.


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