By Michael Becker, President – Kentucky Realtors®
LEXINGTON, Ky. (Nov. 15, 2017) – Tax reform proposals from both the House and Senate make sweeping changes to the tax benefits that homeowners have enjoyed for years. Unfortunately, if the current federal tax proposals stay as they are, this is likely to change. Here’s why:
Roughly 1.2 million Kentucky residents own their own home, and over 381,000 (roughly 32 percent) claimed a deduction for mortgage interest (MID). If the federal plan doubles the standard deduction and removes most of the exemptions available, however, many fewer homeowners would itemize their taxes, essentially taking the MID and other off the table. But wait, there’s more….
Homeowners are currently allowed to deduct the taxes they pay to state and local governments, but that deduction is on the chopping block. Also slated for elimination are deductions for moving expenses, home equity loans, property taxes (capped in House version), student loans (House version) and more. In addition, even though the standard deduction is raised, the personal exemptions are eliminated altogether in both proposals, meaning families are losing out even more – especially if they also own a home.
By example, a family of four, making a combined income of $75,000 a year, and owning a home valued at $250K, could end up with a higher tax obligation, potentially more than $2,000 depending on a variety of factors relating to deductions and exemptions, if either of these proposals were to become law.
Kentucky Realtors® understand that while some individuals may see a tax decrease under these proposals, estimates suggest that many middle-class homeowners, the very group that was promised good news with this reform, could in fact see a net average tax increase. In fact, according to the study: “Impact of Tax Reform Options on Owner-Occupied Housing” by PwC, homeowners with adjusted gross incomes between $50,000 and $200,000 would see their taxes rise by an average of $815. In addition to the direct financial impact of these tax reform proposals, homeownership is dis-incentivized and home values could be negatively impacted by up to 10% – as much as $10k – $20K on average depending on the area of Kentucky in which the homeowner lives.
Corporate tax cuts may be helpful in the worthy goal of improving the economy and driving job growth, but homeowners may be saddled with negative ramifications. Meanwhile, their children and grandchildren will be asked to bear the burden of $1.5 trillion being added to the deficit.
Tax reform is vitally important, but the final product should reflect the tremendous value that homeownership offers all of Kentucky’s communities. If you own a home, or aspire to someday, you’d be wise to examine how this affects you and then let your representative know where you stand.
Kentucky Realtors® is one of the largest and most influential associations in Kentucky. Founded in 1922, Kentucky Realtors® represents more than 10,800 Realtors® who are involved in all aspects of real estate, including residential and commercial real estate brokers, sales agents, developers, builders, property managers, office managers, appraisers and auctioneers.