His bill would amend the mortgage interest deduction (MID) by capping the size of a mortgage for which a taxpayer can deduct the interest at $500,000. The current cap is $1 million.
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 proposal would also eliminate the deduction of interest paid on home equity loans.
Mr. Camp’s bill retains the LIHTC, albeit with changes, while he would eliminate numerous other tax breaks, and is considered to be a victory for affordable housing advocates.
Mr. Camp is retiring at the end of the 113th Congress. Representative Paul Ryan (R-WI) will chair the Ways and Means Committee in the 114th Congress. But he has left a marker that makes room for future changes to the MID.
He rejected the position that MID reform is harmful to the housing market stating, “historical data show that the strength of the nation’s housing market is tied more closely to the health of the overall economy than to any specific tax policies that may be in place.”
The United for Homes campaign proposes to modify the MID by decreasing the cap on the amount of mortgage interest that is deductible to the first $500,000, and converting the deduction to a 15% non-refundable credit. The new tax revenue generated would be used to fund the National Housing Trust Fund.
Mr. Camp’s bill would also amend the Low Income Housing Tax Credit by eliminating the 4% credit and tax-exempt bonds. The bill would also spread the housing tax credit over a 15-year period, compared to the current 10-year period, lengthening the time it would take for LIHTC investors to realize the full tax benefit.
Other proposed changes to the LIHTC would eliminate the 130% basis boost for high cost difficult-to-develop areas (DDA), and occupancy preferences for artists in housing credit developments. Instead, preferences would only be given for special needs households and veterans.
Click here for the draft bill and related materials.