Homeownership Incentives Vigorously Defended at Senate Finance Committee

With talk of tax reform heating up on Capitol Hill, the National Association of Realtors® is offering a full-throated defense of tax incentives that promote homeownership.

Iona Harrison, chair of NAR’s federal taxation committee, testified before the Senate Finance Committee at a hearing titled “Individual Tax Reform.” Harrison told lawmakers that tax reform offers a tremendous opportunity to yield savings and simplification, while warning that misguided reform could alternatively have dire consequences.

“When Congress last undertook major tax reform in 1986, it eliminated or significantly changed a large swath of tax provisions, including major real estate provisions, in order to lower rates, only to increase those rates just five years later in 1991,” said Harrison. “Most of the eliminated tax provisions never returned and in the case of real estate, a major recession followed.”

Real estate remains a more than $3 trillion component of the U.S. economy, while home sales support more than 2.5 million jobs in a given year. But Harrison reminded Senators at the hearing that in addition to supporting the broader economy, homeownership is important to individuals and families as well.

“Real estate is the most widely held category of assets that American families own, and for many Americans, it’s the largest portion of their family’s net worth,” Harrison said. “As 64 percent of American households are owner-occupied, we believe that homeownership is not a special interest, but is rather a common interest.”

Tax incentives for homeownership — including the mortgage interest deduction — have come under fire throughout discussions on reform, with critics charging that the MID primarily benefits the wealthy.

Harrison met those charges head on, noting that the MID and other incentives benefit a wide swath of Americans at all income levels.

“In 2015, the most recent tax year for which IRS data are available, 32.7 million tax filers claimed a deduction for mortgage interest,” Harrison said.  “Fifty-three percent of those claiming the MID in 2015 earned less than $100,000 and 85 percent had Adjusted Gross Incomes of less than $200,000.”

Harrison also took on reported talks for a $500,000 cap on the MID, explaining to Senators that a homeowner needn’t earn a high income to have mortgage debt in excess of $500,000. Harrison cited business owners with significant losses, self-employed individuals with minimal income, and retirees as examples of those who might suffer if additional restrictions were placed on the MID.

In addition to income concerns, Harrison noted that certain geographic areas would be particularly harmed by a lower cap on the MID.

“Those living in high cost areas pay a disproportionately larger amount of their after-tax income toward housing than do taxpayers in other parts of the country,” Harrison said. “Eliminating part of the MID for them would exacerbate that disparity and in fact make home ownership even less affordable for many families.”