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Trump tax proposal draws red line at Mortgage Interest Deductions

(REAL ESTATE NEWS) Trump’s tax proposal framework was unveiled today, and while the Mortgage Interest Deduction is said to be safe, the National Association of Realtors continues to fight for it.

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Today, National Economic Director Gary Cohn and Secretary of the Treasury Steven Mnuchin announced the Trump Tax Proposal, outlining what Cohn called a “once in a generation opportunity.”

Cohn said the primary objectives are to simplify the system, lower rates, and make the system fair (particularly for lower to middle income citizens who have “been left behind by the economy”), in an effort to create economic growth, believing that under this plan, America can get back to a 3.0 percent GDP “that’s sustainable.” He also noted that a primary goal is to eliminate breaks for special interest groups.

Citing loopholes that have “disadvantaged the average American” and tax rates that have pushed money outside of the U.S., personal and corporate tax reform were proposed with the assertion that this proposal still has many details to be fleshed out as it is sent to the House and Senate to become a bill.

Personal tax reform, protecting the MID

Regarding personal tax reform, Mnuchin conveyed that in 1935, citizens filled out a one page tax form with two pages explaining the 34 lines. Today, there are 199 tax forms that take seven billion hours a year to comply with, and Mnuchin says 90 percent of personal tax filers need help filing.

So the Trump administration believes the following will simplify the system:

  1. Seven tax brackets will become three (10%, 25%, and 35%).
  2. Doubling the standard deduction (“a zero tax rate on the first $24k a couple earns,” says Cohn).
  3. Tax breaks for child care costs.
  4. Repealing several taxes (Alternative Minimum Tax, 3.8 percent “Obamacare tax,” as they called it, and the estate tax).

The non-negotiables for the administration were protecting charitable giving and the mortgage interest deduction (MID).

We’ve written endlessly on the MID, how it is critical to homeownership, and how the National Association of Realtors (NAR) has tirelessly fought to protect the deduction.

Corporate tax reform

Secretary Mnuchin outlined the corporate tax reform proposal, citing the objective as making American business “the most competitive,” and asserting that the plan will return trillions of dollars from offshore to purchase capital and create jobs. Although they’re still working out the details on entrepreneurs and independent contractors like Realtors, Mnuchin continues to say that small to medium businesses (and assumably LLCs) will be eligible for the business rate.

The Trump Tax Proposal for corporate taxes includes the following:

  1. Wildly slashing the top tax rate for all businesses to 15 percent.
  2. Moving to a territorial tax system.
  3. No border tax adjustment.
  4. A one-time tax on overseas profits.

As real estate practitioners, most of our readers will care most deeply about the top tax rate which is 20 percent below today’s top corporate tax rate, and huge news for self employed people (like Realtors) who currently pay a top tax rate of nearly 40 percent.

NAR continues to fight for the MID

NAR has expended an enormous amount of effort into protecting the MID for many, many years. And while the MID was one of the only non-negotiables of the proposal, NAR President William E. Brown says Trump’s proposal comes “at the expense of current and prospective homeowners,” even though “major reforms are needed to lower tax rates and simplify the tax code.”

NAR appears to be the biggest winners of the fight to protect deductions (nay, the only non-charitable winner), but Brown said in a statement, “The mortgage interest deduction and the state and local tax deduction make homeownership more affordable, while 1031 like-kind exchanges help investors keep inventory on the market and money flowing to local communities,” stating that those tax incentives are now at risk (although Cohn cited the MID as one of the only protected deductions that will remain).

“Current homeowners could very well see their home’s value plummet and their equity evaporate if tax reform nullifies or eliminates the tax incentives they depend upon,” said Brown, “while prospective homebuyers will see that dream pushed further out of reach.”

What NAR didn’t say in their statement is that yes, the MID is protected under this proposal, but the unpredictability of this President’s negotiation methods means it’s vulnerable until the ink dries on a bill that protects the MID.

So the fight is still on and they’re going to continue the tradition of pushing to protect the MID. Vigorously.

Concluding, Brown said that Realtors® support tax reform, “and it’s encouraging to see leaders in Washington doing their part to get there. We believe tax rates should come down to the degree that sound fiscal policy allows, and simplifying the tax code will help ensure fairness and transparency for individual taxpayers.”

Two out of four major objectives down

Mnuchin says the overall economic plan consists of four parts: Tax cuts, tax reform, regulatory relief, and renegotiating trade deals. Today’s proposal, if it becomes a successful bill, knocks down two of the four stated pins.

People paying nearly 40 percent in taxes (aka most of our readership) could potentially be getting a large raise. If the MID is ultimately protected, current and future homeowners can rest easy. But as NAR points out, there are some real-estate related incentives like 1031 potentially on the chopping block.

Politicians on both sides have long called for a simplification of the tax system, but getting all to agree on what that looks like is no easy task, so the turns this proposal takes as it is transformed into a bill will be quite interesting.

#GrabsPopcorn

Lani is the Chief Operating Officer at The Real Daily and sister news outlet, The American Genius, and has been named in the Inman 100 Most Influential Real Estate Leaders several times, co-authored a book, co-founded BASHH and Austin Digital Jobs, and is a seasoned business writer and editorialist with a penchant for the irreverent.

Politics

Evictions are mounting, affecting renters and landlords

(POLITICS) Eviction moratoriums both ending and extending are causing ripple effects of economic trouble for renters and landlords.

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The United States continues to struggle to find a balance between public health protections to slow the spread of coronavirus and economic measures to prevent Americans from bankruptcy as a result.

While eviction bans initially provided relief for renters who lost jobs and couldn’t afford rent payments, the effects bounced up to property owners who lost those payments. Though the first coronavirus stimulus package renter protections extended to landlords, property owners say banks are still expecting mortgage payments as the relief expires. Many worry the expiration of the additional $600 added to unemployment will exacerbate the problem.

In Texas, the statewide eviction moratorium ended in May. Unlike other major cities which chose to use funds from the federal coronavirus stimulus package to pay for legal representation for tenants, Houston let local protections for tenants expire with the moratorium.

In Houston, there is little recourse for tenants served with an eviction notice. Tenants only have five days to appeal, and there is no legal defense for a tenant who can’t pay at least one month’s rent to the court registry. As a result, tenants facing eviction often surrender and leave. Unfortunately, the result is tenants moving in temporarily with friends and family while they look for new housing, causing overcrowding and presenting a health risk to everyone involved. The CDC has specifically named “poverty and crowding” as a top risk factor for COVID-19.

However, not all evictions are the result of unpaid rent. Marie Baptiste, a landlord in Randolph, Massachusetts reported to the Boston Globe that she has lost recourse against a tenant who not only stopped paying rent long before the pandemic started, but caused water damage and a rat infestation. The tenant argues the structural problems were her reason for withholding rent.

Consequently, Baptiste says she is now $19,000 in the hole for this property, and can do nothing about it. In July, Governor Charlie Baker extended the eviction moratorium to mid-October. In a survey conducted by MassLandlords, one-fifth of landlords are uncertain how they will keep up with mortgage payments. Many fear they will be forced to sell or face foreclosure without relief.

Without protections for both tenants and individual property owners, the eviction moratoriums could have long-term consequences for housing in large cities. Urban centers, already struggling with rent inflation and lack of affordable units as large developers take over, could see this problem exacerbated for years to come. It is imperative that the next stimulus package consider how relief for both renters and property owners can be leveraged to prevent these challenges.

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Politics

COVID-19: NAR’s fight for independent contractor relief

(POLITICS) Economic relief is on its way for the self-employed and independent contractors like Realtors, with NAR pushing politicians to pay attention.

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Earlier this week the U.S. Senate passed an unprecedented $2 trillion COVID-19 economic relief package. The bill is now in the U.S. House and is expect to be signed by the President without any issues.

Self-employed and independent contractors have been anxious about the bill since talks began. It would not be the first time theses types of workers were left out of key economic legislation. As the majority of the nation’s realtors are self-employed or commission-based, they have been hit hard by the economic effects of COVID-19.

Just last week home buyer disinterest tripled; few are looking to buy a home right now and social distancing restrictions have made it difficult to attract new clients or show property.

Realtors want to do their part to stop the spread of the virus, but just like everyone else, they need support during this difficult time.

During the last several weeks, the National Association of Realtors (NAR) has been in constant discussion with lawmakers to ensure that these groups are taken into account for the economic relief package.

NAR Senior VP of Government Affairs, Shannon McGahn stated, “We have worked closely with Congressional leaders and the administration during the past several weeks to ensure all three bills bring relief to the self-employed, independent contractors, and small businesses. The real estate industry is responsible for millions of jobs and is key to our national recovery.”

The economic relief package includes $350 billion for the Small Business Administration 7(a) loan program. Under the terms, eligible small businesses, which in this case are those that have 500 employees or fewer, can receive up to $10 million toward mortgage interest, rents, utilities, and payroll costs. A portion of these loans will be forgivable.

In addition to relief through the loan program, self-employed and independent contractors will be able to take advantage of unemployment insurance benefits. This program could cover benefits for up to 39 weeks, a huge relief as many find themselves and their businesses suddenly devoid of cashflow.

This is the third relief package to be signed into law, with a fourth expected to be signed in the coming months. These are stressful COVID-19 times and no bill will ever be perfect, but some relief is on its way. 
 

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Politics

COVID-19: Senate passes the relief bill, now it’s in the House’s hands

(POLITICS) Many people heard that the Senate passed a relief bill, but don’t quite understand that it’s not a done deal. Now the House gets to add their input.

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The House can’t seem to agree on the COVID-19 relief bill. Yesterday, the Senate and the White House came to an agreement on a $2 trillion economic stimulus package. Today, House Speaker Nancy Pelosi has publicly stated that the House will be reviewing the bill, but there is no commitment as to whether the bill will pass or not. The Hill reported that some House Democrats are concerned that they have not provided any input.

What’s in the measure?

According to CBS News, the actual text of the measure hasn’t been released, but they did get information from Minority Leader Chuck Schumer about some of the contents:

  • Expanded unemployment benefits to boost the maximum benefit and to give laid-off workers full pay for four months
  • Direct payments to individuals making less than $99,000
  • $130 billion for hospitals
  • $367 billion in loans for small business
  • $150 billion for state and local governments
  • $500 billion for large businesses
  • Creates an oversight board to govern large loans
  • Prohibitions to prevent President Trump and family from getting federal relief

Will the measure pass?

Pelosi has said that this relief bill is a big improvement over the Republican’s first proposal. It seems as if she is working hard to move the measure through the House, but given the current state of politics, it’s hard to believe that anything will be done without some debate. 

Many Democrats have pushed for a food stamp increase, which is not in the current measure. However, the Democrats did win on the oversight board that protects the employees of the companies who are getting loans. Money for states was another Democrat victory in the current measure.

If the bill can pass the House unanimously, lawmakers won’t have to vote on the floor.

If the House can’t agree, the House will need to reconvene and amend the Senate measure or pass their own measure.

Under the COVID-19 travel restrictions and quarantine issues, it might be difficult to get anything done quickly. The urgency is real, but so is the responsibility. Representatives want the money to do what Congress intends, not for CEO compensation or stock buyouts.

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