Today, tax itemizers can deduct interest paid on mortgages of up to $1 million from their taxes. Mr. Camp would lower it to $500,000.
“Mr. Camp’s willingness to change the mortgage interest deduction indicates that it is no longer the untouchable third rail of tax policy and is ripening for reform,” said National Low Income Housing Coalition (NLIHC) President and CEO Sheila Crowley in a February 26 statement.
The reduction to the MID cap proposed by Chair Camp would be phased-in over four years, becoming $500,000 in 2018 and would only be applied to new mortgage debt. The tax reform 2014 proposal would also eliminate the deduction of interest paid on home equity loans.
According to Ways and Means Committee materials,
“The provision would preserve a substantial tax benefit for homeownership without affecting most taxpayers, who either do not itemize their deductions or who live in moderately priced housing markets.”
Mr. Camp would also increase the standard deduction, and thus predicts that “far fewer taxpayers” compared to today would be impacted by the MID cap reduction. Under his plan, 95% of taxpayers would find “they are better off by taking advantage of the larger, simpler standard deduction instead,” according to the discussion draft summary.
“By reducing the current-law $1 million limitation, the provision would more effectively promote homeownership, rather than also promoting leveraged purchases of larger homes than taxpayers otherwise would acquire without the tax benefit,” the summary says.
The United for Homes campaign, of which Monarch Housing is an active member, proposes modifying the MID by decreasing the cap to $500,000 and converting the deduction to a 15% non-refundable credit. Unlike the United for Homes campaign proposal, which would direct the revenue generated through those modifications to fund the National Housing Trust Fund, Mr. Camp’s proposal would direct revenue generated to lowering individual tax rates. The United for Homes proposal is reflected in H.R. 1213, the Common Sense Housing Investment Act of 2013.
“Dead on arrival” is the ubiquitous status report for Chair Camp’s plan. However, it represents years of work and is likely to be used as a starting point for future tax reform efforts. Now is the time to ensure our members of Congress know the impact of these changes.
Click here to view House Ways and Means Committee’s Tax Reform Act of 2014.
Click here to read NLIHC President Sheila Crowley’s February 26 statement.