House and Senate Pass Tax Reform Package
By James E. Hyland, Esq., The Pennsylvania Group and TLTA Federal Legislative Counsel| Dec. 20, 2017
Late on Friday, Dec. 15 the House and Senate agreed to new a tax bill that will become the final bill sent to the President. The full U.S. House passed it 227-203 Tuesday afternoon (and again Wednesday morning with a 224-201 vote). The Senate passed the bill 51-48 in the early morning hours on Wednesday. The bill will now be enrolled and sent to the President in the next few days and become law when he signs it. The title industry has been carefully reviewing provisions impacting real estate and small businesses and is still assessing the full bill.
On issues impacting housing, there will be some significant changes. As previously reported, the Senate bill preserved the home mortgage interest deduction as it stands today at $1 million, but the House bill reduced the deduction to $500,000. The final bill split the difference and retains the mortgage interest deduction at $750,000 for a home mortgage going forward. All current mortgages are grandfathered. The bill, however, will eliminate interest deductions for second mortgages.
In a major victory for the title and real estate industry, proposed restrictions on a capital gain exclusion for a home sale were eliminated from both bills in the Conference report, thus keeping current law. The Senate and House had previously sought to eliminate a capital gains exclusion from a home sale, requiring homeowners to own a home for five years, rather than the current two years to permit the capital gains exclusion. TLTA, ALTA and other housing groups were working very aggressively to change this provision because of concern with mobility in the housing markets. It is estimated that 15 percent of homes in Texas would have fallen in the category of eliminating the capital gains exclusion. Eliminating this from BOTH the House and Senate bills was a major victory for our industry and we think very helpful to a robust housing industry.
Provisions of note:
Home mortgage interest deduction retained; set at $750,000 for a home mortgage going forward.
Capital gains exclusions remain unchanged.
The deduction for state and local income taxes is preserved, but capped at $10,000.
Like-kind (1031) exchanges for real property were preserved.
Owners of so-called "pass through" businesses can deduct 20 percent of earnings and then pay at their personal income tax rate on the remainder of earnings.
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