Tax reform proposals swirling around Washington, D.C. right now make some sweeping changes to the tax benefits that homeowners have come to depend on. For taxpayers in Washington state, these changes could have costly consequences.
More than seven of every 10 hard-working homeowners (72 percent) in our state have a mortgage, and 839,530 of them claimed a deduction for mortgage interest (MID). These deductions totaled $8,610,219,680 in 2015.
This deduction, however, will likely have significantly less value if Congress goes through with a plan to double the standard deduction; far fewer homeowners would itemize their taxes, taking the MID off the table.
The most recent IRS data available shows that at a marginal rate of 25 percent, the average taxpayer saved $2,564 in taxes in 2015 as a result of mortgage interest deduction. Congress is looking to reclaim those savings, taking it right from the pockets of homeowners.
The mortgage interest deduction isn’t the only deduction homeowners will lose out on, either. Homeowners are currently allowed to deduct the property taxes they pay to state and local governments, but that deduction is in jeopardy. That means homeowners will experience “double taxation” as their income is taxed at the federal level and then again for state and local property taxes. Although House Ways and Means Chairman Kevin Brady issued a statement over the weekend indicating plans to partially restore itemized property tax deductions, any tax overall proposal that undermines existing incentives for homeownership would harm working-class families.
In 2015, IRS data show 950,010 taxpayers in Washington claimed a deduction for local real estate taxes. On average, these taxpayers subtracted $4,692 from their taxable income. The total amount deducted was nearly $4.5 billion.
If the MID and real estate tax deductions were eliminated, the loss would not be a one-year event; homeowners lose out on these potential savings each and every year.
Tax reform is important, but the final product should reflect the tremendous value that homeownership offers the community. Homeowners pay 83 percent of all federal income taxes.
Congresswoman Suzan DelBene, representing Washington’s 1st District, and Congressman Dave Reichert, from the 8th District, are members of the U.S. House Committee on Ways and Means, the chief tax-writing committee of the United States House of Representatives.
If you believe tax incentives for homeownership should be preserved, you’d be wise to let these two legislators and other Representatives know where you stand.
Sam DeBord is 2017 president of Seattle King County REALTORS® and is a managing broker at Seattle Homes Group Coldwell Banker Danforth.