Homeowners hardest hit in latest proposed tax overhaul
You've probably heard about the splashiest cut proposed in the bill: a reduction in the maximum deductible mortgage amount from
For example, Section 1402 of the proposal would significantly alter the ground rules governing a benefit that millions of homeowners have factored into their financial planning for decades. Under current law, you can exclude from taxation the first
Under the Republican proposal, the two-out-of-five standard would vanish. Instead you'd need to live in and use the property as your main residence for five of the preceding eight years -- a requirement designed to lower the number of people eligible to claim the exclusion. This would inevitably hurt middle-income families and others who were forced to sell their houses because of job transfers or medical reasons, as well as first-time buyers moving up to a new home a few years after purchase as their families expand.
Another noteworthy change that's easy to miss: Section 1302 of the bill, which would slice the mortgage-interest deduction in half, includes a single sentence that could be important to many Americans who own second homes. It says simply that taxpayers can have only one "qualified residence." With that brief redefinition, the bill would eliminate thousands of homeowners' ability to write off mortgage interest on second homes and weekend getaway houses.
Then there's the whole issue of when the housing changes proposed in the bill would take effect. Traditionally, major tax bills contain "transition" periods to give affected taxpayers time to adjust. That could happen with this bill as well, but at the moment, the starting dates included for housing provisions are shocking. Check out these effective dates as they currently stand in the bill:
* The reduction in the mortgage-interest deduction ceiling, plus deductions for second homes, would take effect on loans taken out after
* The capital gains exclusion changes would cover home sales after
* The capping of deductions for state and local taxes to
* Expenses related to moving from one home to another no longer would be deductible after
You might be wondering: Could all this nasty targeting of home ownership actually make it through
But keep this in mind: Republicans are desperate to pass a "tax cut" bill by year's end.
There are plenty of obstacles in their way -- even from within their own ranks. But it could happen.
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