Yesterday I testified before the House Financial Services Subcommittee on Housing and Insurance regarding GSE Reform. However, not surprisingly, the GOP tax legislation unveiled earlier that day ended up dominating a fair amount of discussion.
MBA has already created a summary (below) of key real estate provisions that the legislation impacts, but let me also share some initial thoughts on what this proposal means for our industry.
As I said in our press statement, we have serious concerns about some provisions that might negatively impact housing markets across the country. Specifically, we believe the cumulative impact of the proposed changes to the mortgage interest deduction, capping the deduction for state and local real estate taxes, and the phase out of the exemption for capital gains treatment when families sell their principal residence could have significant adverse impact on housing markets, particularly in high cost areas. Additionally, we are also concerned about the bill’s impact on affordable housing, due to the repeal of the tax exemption for private activity and mortgage revenue bonds.
That said, it’s important to keep the following things in mind as we move forward.
To begin, tax reform has the potential to spur job creation, wage improvement, and economic growth. This bill includes an increase in the standard deduction, lower rates for lower and middle income families, and other popular provisions that could benefit the economy. The bill also significantly reduces the U.S.’s high corporate tax rate. All this points to the prospect of growing economic strength in this country which would be very positive for the housing market and MBA members’ businesses. But we will remain vigilant and vocal on the issues that matter most to our industry and our customers.
Also, some of the provisions in this tax legislation offer a very positive outlook for commercial and multifamily companies. The bill retains the deductibility of business interest for real estate, section 1031 like-kind exchanges for real property, and the low income housing tax credit that are important to maintaining strong housing and real estate markets and the production of affordable housing stock.
Lastly, it is important to remember that this is the initial offering from one key stakeholder in the tax reform process, the House leadership and its Ways and Means Committee. The likelihood that this exact text put forth would be signed into law is low, and the bill is almost certain to see some changes by the time the Senate gets its bite at the apple. In fact, just this morning the Ways and Means Committee released a revised draft, though the changes appear to be only on the margins.
MBA has been approaching tax reform in a very deliberate and strategic manner. Despite important disagreements with some provisions of the bill introduced this week, we will continue to look at the proposal as it evolves holistically while this critical process moves forward.