House tax bill contains early holiday gifts for homeowners

(Credit: iStock)
(Credit: iStock)

December is mega-tax-bill time on Capitol Hill, when legislation loaded with gifts and goodies for special-interest constituents moves ahead for action before the end of the year. House Republicans have unveiled their 2018 version — nearly 300 pages worth — and it has goodies galore: Write-offs and tax-credit deals for racehorse owners, “motorsports entertainment complexes,” TV and film producers, mine-rescue team trainers, two-wheeled electric vehicles, Indian coal facilities, economic development in American Samoa and a bunch of others. And yes, homeowners and builders are on the gift list as well:

— Did you pay mortgage-insurance premiums this year on a conventional home loan, a Federal Housing Administration (FHA)-backed mortgage or a Veterans (VA) loan? Congratulations! You’re a potential beneficiary if the bill passes.

— Did you install energy-conserving improvements in your house this year, such as high-performance windows, doors, roofing or skylights? Did you buy an energy-efficient furnace, hot-water heater or air conditioner? The new tax bill has a little something for you. Ditto if you built an energy-efficient new house.

— Were you underwater on your mortgage, forced to do a short sale, foreclosed upon or negotiated a loan workout agreement this year in which the lender forgave the balance owed? Good news. You’re covered by the bill — the IRS will not tax the forgiven balance of your debt as ordinary income if the bill passes and this tax-code provision is extended.

— Were you a victim of one the country’s recent natural disasters, such as hurricanes Florence or Michael, the Camp and Woolsey wildfires or the Kilauea volcanic eruption? The bill offers tax relief to assist your recovery.

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The bill clearly has valuable provisions for certain groups of homeowners. But it also has fundamental problems. Start with the basics: Can it pass? One of the risks of sponsoring tax proposals late in a congressional session — House Ways and Means Committee Chairman Kevin Brady, R-Texas, only introduced it Nov. 26 — is that they can get squished in the last-minute crush of higher-profile legislation, such as this year’s federal-budget resolution. If issues like funding a southern border wall are not solved, there could be a government shutdown. Passing a tax bill in the middle of this brewing partisan storm is a serious challenge.

Another problem: In election years like this one, where control of the House is scheduled to shift in January, late-comer bills get caught up in strategic considerations: Should Democrats accept another giant tax bill rammed through by the Republican majority with little or no debate or input from the minority side? Or might it make sense to wait for 2019, when a Democratic-run House Ways and Means Committee can craft a tax bill that includes more of the new majority’s priorities? Democrats in the Senate are in a position to block Brady’s bill, and they may just decide to wait for next year.

There’s another issue that directly relates to provisions that are supposed to benefit homeowners. Last year’s massive tax-overhaul law doubled the standard deduction to $12,000 for single filers and $24,000 for married couples filing jointly. The idea was to simplify the process by eliminating incentives for taxpayers to itemize expenses and claim deductions. Millions of taxpayers, including many homeowners, are expected to stop itemizing and opt for the fattened standard deduction when they file for 2018 because their total deductions are below the $12,000 and $24,000 ceilings.

As a result, large numbers of people who would otherwise have claimed deductions for mortgage-insurance premiums under the bill won’t likely be doing so. That’s especially the case since eligibility for taking this particular deduction phases out for taxpayers with incomes higher than $100,000. Most of these taxpayers will be taking the standard deduction anyway, so the value of the provision in the bill is questionable. The same holds true for the energy-improvement deductions for windows and doors. How many homeowners are really going to want to claim this relatively modest benefit when they can simply check off the box and take the standard deduction?

The mortgage-debt forgiveness provision in the bill is in a different category. It’s a crucial money saver for thousands of financially stressed homeowners and is not affected by the doubling of the standard deduction. If the Republicans’ bill doesn’t survive the congressional crush this month, look for it to reappear — retroactive for 2018 — when House Democrats write their own tax bill in 2019.