Facts about Camp reforms

Lauren Bunting


The National Association of Realtors (NAR) issued a brief entitled “Top 10 Things for Realtors to Know About the Camp Tax Reform Proposal”. The proposal was released last week by House Ways and Means Committee Chairman Dave Camp (R-MI) in an effort to reform the federal tax system. Even though the plan was introduced as a discussion draft only, and not a bill, NAR is treating the document with importance as the basis for future tax reform bills.

In this week’s article, we will provide the first five proposals noted affecting homeowners, and follow up next week with six through 10:

1. Increase the standard deduction. The Camp plan would consolidate the current-law standard deduction and the personal exemptions into one larger standard deduction. The effect would be to greatly diminish the number of Americans who can receive a tax benefit for owning their own home. The materials supplied by Chairman Camp indicate that the number of taxpayers who would be able to itemize would drop from today’s rate of about one in three to about one in 20. Thus, for most Americans, home ownership would have no tax advantage over renting.

2. Repeal the deduction for state and local taxes. The Camp proposal would repeal the deduction for state and local taxes paid (unless paid or accrued by a business or by someone owning rental property). The plan would eliminate one of the major tax incentives available today for owning one’s home – the ability to deduct real estate taxes.

3. Limitation on deductibility of mortgage interest. The Camp plan would reduce the current law’s mortgage loan limit from $1 million to $500,000 in four annual increments of $125,000 each. Thus, for the first year, the limit would be reduced to $875,000, for the second, it would be $750,000, and so forth. This would apply to debt incurred after 2014, and older mortgages would be grandfathered. In addition, interest on new home equity loans would no longer be deductible.

4. Exclusion of gain from sale of principal residence. The Camp plan would modify the current-law exclusion to provide that instead of the home having to be owned and used as the taxpayer’s principal residence for at least two out of the previous five years, the property would have to be owned and used by the taxpayer as his or her principal residence for at least five of the previous eight years. Moreover, the modification also would limit the use of this provision to once in every five years, from today’s rule of once every two years. Finally, the exclusion would be phased out for higher-income taxpayers (those with modified adjusted gross incomes exceeding $500,000 for joint filers and $250,000 for singles).

5. Mortgage debt forgiveness. The Camp plan does not include any mention of the tax treatment of discharge of mortgage indebtedness. The draft expressly repeals other so-called “extenders” which have been temporary parts of tax law. However, the draft also does not make the provision permanent.

— Lauren Bunting is a licensed REALTOR®with Bunting Realty, Inc. in Berlin.

Leave a Comment