TAX REFORM PLAN ATTACKS HOMEOWNERSHIP

By Jeff Waddle, President
Home Builders Association of Midwest Georgia

Homeowners across the country rely on tax breaks and incentives to realize their dream of homeownership. Under current tax law, interest payments on mortgage debt of up to $1.1 million are deductible, including $100,000 for home equity loans. Thirty-seven million households deducted mortgage interest in 2004, saving $70 billion in taxes. But on November 1, the President’s Advisory Panel on Federal Tax Reform delivered a harsh blow to those millions of homeowners when it recommended overhauling the tax system.

The panel proposed replacing the valuable mortgage interest deduction with a much more limited home credit equal to 15 percent of the interest paid on a principal residence. The ceiling on the credit would be based on regional housing costs and range from $227,000 to $412,000.

“The inability to deduct mortgage interest and equity line interest would be devastating to my family and others very close to me,” said a homeowner in California. “The net effect is not just income — which would force us and others to entertain leaving California — but also my kids’ college education and pure family stability.”

Going even further, the plan would also eliminate deductions for state and local taxes (including property taxes) and interest deductions for home equity loans and second homes.

“It’s the biggest tax hike for homeowners ever considered,” said Jerry Howard, executive vice president and CEO of the National Association of Home Builders (NAHB) “Replacing the mortgage interest deduction would punish millions of homeowners, particularly those living in high-cost markets.”

NAHB analysis found that the advisory panel’s tax plan would actually represent tax hikes of 39.6 percent for a home-owning family of four in the Chicago metropolitan area, 19.4 percent for a similar family in San Jose, Calif. and 8 percent in Binghamton, N.Y.

Newest Homeowners Hit Hardest

And the hardest hit families under this plan will be the 18 million households who bought their homes during the past three years when prices were going up 10, 15 or even 20 percent annually in many markets. Most of these households have significant mortgage interest payments in the early years of their relatively large mortgages. Virtually all of them were counting on the mortgage interest deduction to reduce their housing costs to more affordable levels.

In addition, millions of other families have refinanced their mortgage to remodel their homes, to send their children to college, to cover medical expenses, or to pay off consumer credit card debt. By and large, these are middle-class Americans who are counting on these tax incentives to help them maintain their current standard of living.

Home Values Would Fall

Equally disturbing, this plan would cause home values to fall. By stripping away the housing tax incentives, demand for housing is likely to slow at a time when interest rates are already rising and home appreciation is easing. Considering that a good portion of the wealth of the nation’s homeowners comes from the net equity they have built up in their homes, this would be a tremendous blow for millions of working families.

NAHB has a host of resources on the proposed tax reform effects on homeowners available on its website. For more information, log on to this website.

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(Jeff Waddle, who is with David Weekley Homes, is 2005-’06 president of the Home Builders Association of Midwest Georgia, which serves a membership of approximately 650 builders and associate members in Fayette, Coweta, Spalding, Meriwether, Heard, Pike, Upson, Lamar, Butts and Jasper Counties. The Midwest Georgia association can be contacted by calling 770-716-7109 or at hbamwg@bellsouth.net. Formerly Southeast project manager for David Weekley Homes, Jeff became the company’s senior manager for Hilton Head/Savannah in February of this year.)

Add comment January 19th, 2006