Congressional Republicans announced Wednesday that they’ve reached a deal on reconciling the House and Senate tax reform bills, putting the most sweeping tax bill since 1986 on the brink of passage. A vote could come as early as next week.
While details of the compromise have yet to be released, it appears the final bill will more resemble the Senate’s tax reform bill than the House’s. That’s good news for proponents of many of the housing measures in the tax code, as the House bill came down hard on state and local tax (SALT) deductions, the mortgage interest deduction (MID), and affordable housing.
Still, virtually all of the tax benefits related to housing will be diminished either directly or indirectly by the two biggest changes in the bill — lowering the corporate tax rate and doubling the standard deduction.
Taxpayers can either itemize deductions or take the standard deduction. The bill would raise the standard deduction from $6,250 for individuals and $12,700 for married couples to $12,000 for individuals and $24,000 for couples. The Tax Policy Center estimates this will cause the number of taxpayers who itemize to drop from 45 million to 18 million, which means fewer people taking the SALT or MID.
The SALT deductions, which allow taxpayers to deduct the property and income taxes they pay to states and cities from their federal returns, will be capped at $10,000. The House bill had repealed SALT deductions in their entirety. This would affect mostly wealth people in blue states.
The MID, which allows taxpayers to deduct mortgage interest on loans up to $1 million, was capped at $500,000 in the House bill but was untouched in the Senate bill. The two chambers have split the difference in the final bill, dropping the cap to $750,000. This also would affect wealthy property owners in coastal states, but such a minor change likely will have little impact.
The House bill repealed the estate tax in its entirety after 2024, but the Senate’s proposal to double the exemption from $5.5 million to $11 million won out. This means estates passed down to family members will face a 40 percent tax on the value of the estate in excess of $11 million.
Affordable housing built using the Low-Income Housing Tax Credits (LIHTC) will take hit because of the drop in the corporate tax rate from 35 percent to 21 percent. This simply diminishes the value of the credits and thus the amount of equity that can be raised for development projects that agree to include low-income housing units.
But the program dodged the most lethal bullet of the two bills. The House bill eliminated tax-exempt private activity bonds, which are used in financing a third of all LIHTC units. The Senate bill retained them, and so does the the compromise bill.
The status of the Historic Tax Credit (HTC), which was also repealed in the House bill, was unclear at the time of publication. HTCs have raised $117 billion in private investment to renovate more than 40,000 structures since the program’s inception in 1981.