ROLL OF THE DICE FOR HOME MORTGAGE INTEREST DEDUCTION

Recently, the Chairman of the Senate Finance Committee, Max Baucus (D-MT) and Ranking Member Orrin Hatch (R-UT) announced their plan for tax reform legislation in the United States Senate.  A letter to all Senators announced their intention to “mark-up” (create legislation in the committee) a tax reform bill which would start with a “blank slate.” This proposal mirrors the path outlined by Ways and Means Chairman Dave Camp (R-MI) in the House of Representatives. 

What is a “Blank Slate?”
 
A “blank slate” means that as a starting point, ALL tax expenditures (including tax deductions such as the home mortgage interest deduction and capital gains exemptions) will be removed from the tax code.  Senators will then have to ask that tax expenditures be added to the reform legislation. 

With Baucus and Hatch using the “blank slate” approach, they claim it allows the Senate Finance Committee to highlight just how much tax rates could be reduced by eliminating all the tax expenditures, which opens the door for the converse as well; that by adding any deductions back into the code, the tax rates will ratchet up.

(Odd juxtaposition: By keeping the mortgage interest deduction, it actually lowers the tax rates for all homeowners... don't you love the way "tax deduction" and 'tax expenditure" are used in bureaucratese to mean the same thing.)

Next Steps: Each Senator has been asked to submit, in writing, any tax expenditures they wish to see kept in the code.   Senators have until July 26th to submit the requests to the Finance Committee.  Once all submissions are received, the professional staff of Senate Finance Committee will begin drafting a tax reform package.  The drafting of the package will occur during the August congressional recess. The expected goal for the Committee is to present a completed draft for review and possible legislative action in September. 

How Will This Process Affect REALTORS® and Home Buyers?

Obviously, there are a wide range of vital provisions in the tax code that affect residential, investment, and commercial real estate. The San Mateo County Association of REALTORS (SAMCAR) in concert with Natiojnal Association of REALTORS (NAR) will be taking the lead in ensuring that each of those tax provisions is defended.  NAR will work with the Senators, as well their allies in other real estate associations to identify champions for each provision.  Meanwhile, SAMCAR (in conjunction with home owners' groups) will be on the offense, working to improve certain provisions or make some temporary provisions permanent. 

Media Noise: Be forewarned. There will be a lot of chatter in the media, social media, blogs and commentary that provisions like the mortgage interest deduction are being eliminated…  or should be eliminated with the deception of usual “Canada doesn’t have a mortgage interest deduction and they’re just fine.” (NOT.)  Passage of tax reform is far from certain.  Many of the reports you see will be attempts to predict what might happen.  There will be much speculation and it is important to remember that it is just that... speculation.

That being said, SAMCAR and NAR are not taking anything about tax reform for granted and neither should you! Should any threat to the mortgage interest deduction be broached, real estate industry members and home owners will be called to action in droves!