Tax Reform is underway on Capitol Hill. The process will begin in earnest on July 26, 2013 when the Senators submit their tax priorities to leaders of the Senate Finance committee. Leading up to that, the Senate adopted a “Blank Slate” approach that initially eliminates every provision in the tax code, including those that encourage real estate ownership and investment.
What will be removed from the tax code on July 26 in order to create the “Blank Slate” will be tax deductions for mortgage interest, tax exemptions such as capital gains exemption on sale of a primary residence, and tax credits such as energy efficiency tax credits. With values in California among the highest in the U.S. and with real estate ownership and investment also among the highest, California would be dramatically impacted by elimination or major modification to these provisions.
When Senators submit their new priorities on July 26, that means they will request which tax expenditures be added to (or back to) the blank reform legislation. Senators are asking for input on what tax provisions should be maintained, modified, or improved in a potential tax reform bill.
Now is the time to make our voices heard now so real estate provisions are on the top of the Senators’ lists. We need to be a voice for the seventy-five million homeowners, as well as the tens of millions of Americans who are directly or indirectly invested in real estate and related fields.
When approaching tax reform, Congress should be careful not to inflict adverse consequences on either the economy or the unique legacy that homeownership and real estate investment have contributed to making our country prosperous. Real estate remains a driving engine in the U.S. economy and should not be encouraged, not hobbled.
The first rule in tax reform should be “Do No Harm.” The “Do No Harm” real estate tax provisions we must encourage Congress to retain and, in some cases, improve are:
· The mortgage interest deduction should be preserved in its current form and the limits indexed for inflation.
· The deduction for property taxes paid should be preserved.
· The exclusion of capital gains on the sale of a principal residence should be preserved and the limits indexed for inflation.
· The temporary exclusion of income from discharge of mortgage debt (mortgage cancellation) should be made permanent.
· The depreciation periods of commercial and residential buildings should be shortened to reflect the true useful lives of these assets. The temporary provision allowing faster write-off for leasehold improvements should be made permanent.
· Provisions that allow for the deferral of gain on the like-kind exchange of real property should be maintained.
Our nation’s real estate markets are finally on the road to recovery. One of the surest ways to halt this recovery is to create uncertainty about whether the current tax treatment will be eliminated or impaired for real estate owners and investors.
Congress must be mindful of the broad impact that the overnight elimination of long-standing and widely utilized tax provisions would have on our nation’s economy.
We hope you will express your support for the vital role real estate plays in our economy to the leaders of the Senate Finance Committee, and share with your friends, family and colleagues, by urging them to retain and improve these important parts of our tax system.
Kathi, Bob, and Cris McLean and The McLean Team