Perhaps we’re breathing a sigh of relief today, thinking it could have been worse? The new tax law in the USA preserves several major housing tax breaks while imposing caps on others.
U.S. homeowners with existing mortgages will see no change to their mortgage interest deduction. Starting Jan. 1, homeowners obtaining new-purchase loans on a first or second house will have their mortgage interest deduction capped at $750,000, down from the current $1 million.
Deductions for state and local income and property taxes will be capped at $10,000.
The plan preserves current law that gives homeowners a tax break on profit from the sale of a house as long as they’ve owned and occupied it for two of the past five years. Up to $500,000 in capital gains from the sale of a primary residence is tax free if the owner-occupancy requirement is met. The provision was a hard-fought win for real estate and title companies.
Advocates for affordable housing prevailed in their fight to preserve tax exemptions for private activity bonds, a popular tool used to finance low-income housing, hospitals and infrastructure. Low-income housing tax credits are also retained under the new plan.
A cut to the corporate tax rate will hit companies that hold deferred tax assets, including government-backed Fannie Mae and Freddie Mac. A February analysis by Fitch Ratings calculated that the mortgage giants would need to write down a combined $23.1 billion in tax assets under a 20 percent tax rate. As a result, the companies are likely to require another infusion of taxpayer cash early next year.