Making the Case for Housing Tax Incentives

Filed in Capitol Hill, Economics by on March 20, 2015 0 Comments

yellow houseWhile NAHB members across the nation last week were busy Bringing Housing Home™ during in-district meetings with their lawmakers, NAHB tax staff was on Capitol Hill fighting to protect homeownership tax incentives, including the mortgage interest deduction, in any future tax reform effort.

The Senate Finance Committee is currently examining tax reform efforts and conducted a roundtable on homeownership tax rules that also included tax staff from industry groups and economists from Washington think tanks and local universities.

During the roundtable, NAHB staff and our industry allies from the Mortgage Bankers Association and National Association of Realtors® provided research and data explaining the history, role and beneficiaries of the mortgage interest and property tax deductions. The mortgage interest deduction is widely claimed by the middle class, providing nearly $70 billion in tax benefits a year to our nation’s home owners. Moreover, the benefits tend to be collected by younger households, who being in the early years of a mortgage, are paying more interest and thus claiming larger deductions.

The roundtable also discussed the capital gain exclusion, an important rule particularly for older home owners looking to relocate, as well the deduction for mortgage insurance (include PMI) and the exclusion for forgiven mortgage debt.

A Trillion-Dollar Hit

While economists from the think tanks made the argument that the housing tax incentives should be transformed, weakened, or perhaps eliminated, NAHB explained to the Senate staffers the significant economic harm that would come from increasing the cost of homeownership. Citing studies from NAHB, academics, and tax think tanks, existing research indicates, for example, that repeal of the mortgage interest deduction would reduce GDP by $100 billion a year, eliminate at least $1 trillion in household net worth, and delay homeownership for younger households.

The Senate Finance Committee will also be holding other tax reform working groups and the collective findings could be used by members to craft a comprehensive tax reform bill later this year.

Many tax analysts believe that the 2015 political environment will not allow for consideration of comprehensive tax reform that includes changes to the individual side of the tax code. However, there is a window in 2015 for debate of business-only tax reform.

NAHB has argued that business tax reform must include rate reductions for pass-through entities (S Corporations, LLCs), as well as C corporations. And business tax reform should protect key tax rules that encourage investment and economic growth, such as the Low-Income Housing Tax Credit, business loan interest deductibility, like-kind exchange, and tax accounting rules for home construction contracts.

As the association has been doing during earlier rounds of tax reform discussions, NAHB will continue to be highly engaged, presenting our research concerning housing and tax policy and the economic benefits of housing, homeownership and residential construction.

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