●Did you pay mortgage-insurance premiums this year on a conventional home loan, a mortgage backed by the Federal Housing Administration or a 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 Internal Revenue Service 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.
The measure 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 — Rep. Kevin Brady (R-Tex.), chairman of the House Ways and Means Committee, 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 such as 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, latecomer 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 decide to wait for next year.
There’s another issue directly relating 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 measure probably won’t 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 tax credits 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.
Ken Harney’s email address is firstname.lastname@example.org.