On December 20, Congress passed H.R. 1, the Tax Cuts and Jobs Act, sending it to the President’s desk for signature.
After significant improvements were made during the legislative process, and due to the robust engagement efforts of our national association, NAHB, and its membership, NAHB issued our support for the final tax bill.
Changes to the tax code will take effect for the tax year starting January 1, 2018, and include the following provisions of note to NAHB’s membership:
- Mortgage interest deduction. Retains the mortgage interest deduction and the deduction for second homes, but reduces the mortgage interest cap from $1 million to $750,000.
- State and local property taxes. Allows taxpayers to deduct up to $10,000 of state and local taxes, including property taxes and the choice of income or sales taxes.
- Capital gains exclusion. Maintains existing law that allows home owners to exclude up to $250,000 (or $500,000 for married couples) in capital gains on the profit from the sale of a home if they have lived in the house for two of the last five years.
- HELOC. Eliminates the deduction for interest on home equity loans.
- Private activity bonds. Retains private activity bonds (PABs), which will enable the Low Income Housing Tax Credit to maintain its effectiveness as the most indispensable tool for the production of affordable housing. Without PABs, we would face the loss of more than 788,000 affordable rental units over the next decade.
- Alternative Minimum Tax. Eliminates the Alternative Minimum Tax (AMT) for corporations and increases the AMT exemption amounts and phase-out thresholds for individuals.
- Individual tax brackets. Retains seven tax brackets, with rates ranging from 10% to 37%. This will provide tax relief for individuals and small businesses and represents a tax cut for most taxpayers.
- Estate tax. Doubles the estate tax exemption.
- Carried interest. Retains existing carried interest rules, but assets must be held for three years.
- Pass-through deduction. Allows most taxpayers with pass-through income to deduct 20% of that income based on wages or on wages plus a capital element.
- Business interest deduction.Provides the taxpayer a choice of making a one-time election for a deduction limited to 30% of adjusted gross income; or for real estate, a 100% deduction for business interest, but with certain tradeoffs.
- Like-kind exchanges. Preserves the benefit for real estate investors to make tax-free exchanges of property, commonly referred to as “like-kind” exchanges.
- Multifamily depreciation. Gives the taxpayer the choice of taking 27.5- or 30-year depreciation, depending on how they elect to treat their business interest.
- Individual tax provision sunsets. Almost all individual tax elements – mortgage interest, state and local property taxes, individual brackets, etc. – expire at the end of 2025. Unless Congress acts, starting in 2026 these modifications will revert back to the tax code as it exists today in 2017.