Feb 9th, 2017
The chairman of the tax-writing House Ways & Means Committee joined REALTORS® at NAR’s 2017 Federal Policy Conference in Washington yesterday and urged them to stay engaged over the next year while lawmakers in Congress look at a full-scale reform of the country’s tax code.
This year, tax reform is expected to be high on the list of priorities Congress and the new Administration are expected to take up. Reform of the secondary mortgage market is also on the agenda for later in the year, along with flood insurance reauthorization and reform.“We have a historic opportunity, the first time in 30 years, to completely reform the tax law,” Rep. Kevin Brady (R-Texas) told hundreds of politically active REALTORS® in Washington Feb. 8 for the conference, which NAR holds every other year to educate its most politically involved members on the issues that are expected to dominate the Washington agenda for the year.
Brady introduced REALTORS® to a tax reform blueprint that Republicans in the House are working on and which stands a good chance of being the main vehicle for any tax reform effort that gets taken up in the House.
The blueprint envisions broadening the tax base by condensing tax brackets from seven to three, with tax rates of 33, 25, and 12 percent, respectively, and increasing the standard deduction to almost twice its current amount. It would also eliminate many itemized deductions, including for state and local taxes. The mortgage interest deduction and the deduction for charitable contributions would remain, but because of the higher standard deduction, it’s likely most homeowners would no longer have an incentive to itemize, a concern of NAR’s.
On the commercial side, the blueprint does not specifically repeal 1031 like-kind exchanges. However, Brady admitted the committee is considering eliminating the provision. The blueprint would allow owners to deduct 100 percent of the cost of new business assets, including buildings (but not land) in the first year of ownership. Brady along with Rep. Peter Roskam (R-Ill.), chair of the tax policy subcommittee of the Ways & Means Committee, said the accelerated expensing could go a long way to offsetting the 1031 exchange as an investment incentive, but they wanted to hear from REALTORS® more about their concerns. “We haven’t made our decisions yet,” said Roskam. “Were listening.”
Maintaining 1031 exchanges is a top priority for NAR. In the question and answer period, a REALTOR® asserted that two-thirds of commercial investment is spurred directly or indirectly by the exchanges.
At the conference, REALTORS® also heard about the prospects for secondary mortgage market reform. The big ideological debate on that issue centers around whether the federal government should continue to back mortgages sold in the secondary market. A staff aide at the conference said legislation has been introduced to help make the debate easier by allowing more private sector parties to buy the risk held by Fannie Mae and Freddie Mac. Other legislation would touch on a common securitization platform Fannie and Freddie are working on, which would allow private insurers to get into the market more. “These are things we can agree on and make the decision [about federal backing] easier once we get there,” he said.
NAR wants to see the federal government stay in the market to ensure the viability of affordable, 30-year, fixed-rate mortgages and also ensure mortgages are available in bad times as well as good.
On flood insurance, congressional aides said many lawmakers want to avoid the kind of short-term reauthorizations of the National Flood Insurance Program that the market saw several years ago. NAR supports early reauthorization of the program, which expires later this year.