Tuesday, March 25, 2014

Tax Man Cometh: Changes to Housing Deductions???

                          Tax Changes 
                     Discussed or Disgusting

Al Clark's latest HomeAction Newsletter had an article that you must know about!!!  

As you are probably aware, there have been designs on changing the tax code for some time.  The complexity and, many would say, unfairness of the present tax code would be resolved by a "simpler Tax Code".   

Such a "simpler Tax Code" would eliminate many tax loopholes but would also slim down the deductions take by the regular man or women on the street.  In fact, most plans would push many to take a standard deduction due to reduction in itemized deductions. In the article, you will see there are many impacts to property owners in this Campbell proposal.

One itemized deduction that always is discussed in the Mortgage Interest Deduction and the related Property Tax Deduction.  As noted in the article below, it is included in the Campbell proposal.  For all those knowledgeable about the housing industry elimination of this deduction is tantamount to reducing home purchases.    Reduction of home sales and home ownership reduces demands for many house related industries from home appliances, to contractors, to furniture sales and beyond.  

It could even hurt your tax situation!!  Yet the key is to stay informed and to voice your concern or your support to your representatives in Congress!!

Now for the news:

HOMEOWNER DEDUCTIONS SCRAPPED IN CAMP'S FEDERAL TAX PLAN

Homeowner Deductions Scrapped In Tax Plan

A tax simplification plan recently announced by House Ways and Means Committee Chairman Rep. David Camp (R-Mich.) would take away many of the deductions you use if you're a homeowner who itemizes. In place of those deductions, Camp would give you a larger standard deduction.

Political pundits predict the proposal won't go far. House Speaker John A. Boehner (R-Ohio) said he wasn't endorsing the proposal, but saw it as a starting point for conversation.

Parts of the proposal that could cost homeowners:

Mortgage Interest Deduction Limits

Camp Proposal: Limits the mortgage interest deduction to $875,000 in 2015, $750,000 in 2016, $625,000 in 2017 and $500,000 in 2018 and after. There will be no deduction for yourhome equity interest after this year.

Current Tax Rules: Generally, married filers deduct interest on mortgages up to $1 million used to acquire a home and $100,000 in home equity loans, although there are restrictions.

Hurts: Homeowners in high cost areas like California, where homes are relatively expensive.

Higher Taxes For Home Sellers

Camp's Proposal: Married filers can generally exclude up to $500,000 of home sale profit for a home they've used as their principal residence for five of the past eight years. The benefit is phased out for those with adjusted gross incomes above $250,000.

Current Tax Rules: Married filers can exclude up to $500,000 of home sale profit if they've used their home as their principal residence for two of the past five years. Some restrictions apply.

Hurts: Anyone who sells their home and plans to spend the equity rather than buy another home, including homeowners who use equity to help fund their retirement.

Bye Bye Property Tax Deduction

Camp's Proposal: No deduction for property taxes.

Current Tax Rules: If you itemize, you can often deduct local property taxes.

Hurts: Homeowners in states that have the highest property taxes, including New Jersey, New Hampshire, Connecticut and New York.

No More Dipping Into IRA For Down payment

Camp Proposal: If you pull money early from an Individual Retirement Fund to use as a down payment on your first home, you pay an early withdrawal penalty.

Current Tax Rules: You and your spouse can each withdraw up to $10,000 from your IndividualRetirement Accounts to use as a down payment on your first home.

Hurts: First-time home buyers and homeowners selling entry-level homes. Saving a down payment is a tough hurdle for most buyers.

Home Destroyed By Disaster?

Camp's Proposal: Starting in 2015, you'd get no deduction for losses you experience when a natural disaster, like a hurricane, damages or destroys your home.

Current Tax Rules: If your personal casualty loss is more than 10 percent of your adjusted gross income, you can deduct your loss, subject to restrictions.

Hurts: Homeowners everywhere. Natural disasters strike all states.

Energy Efficiency Tax Credit Not Coming Back

Camp's Proposal: No renewal of the $500 tax credit for home energy improvements and repeal of the 30 percent tax credit for big-ticket energy improvements.

Current Tax Rules: The $500 tax deduction expired at the end of 2013, but the 30 percent tax credit for home solar systems, wind turbines and geothermal heating systems is available through 2016.

Hurts: Homeowners who need a push to make the upfront investment to install home energy efficiency improvements. Americans, generally, because more efficient homes use less fuel lessening demand. Higher demand equals higher prices and more reliance on foreign oil.

Two Tax Brackets

In exchange for taking away those homeowner tax benefits, Camp would create two tax brackets: 10 percent and 25 percent. Married couples earning more than $450,000 would pay a 10 percent surtax. Corporations would pay 25 percent, compared to the 35 percent they pay now. 
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