Tax reform proposal eliminates deduction of property taxes and limits size of interest on mortgage deducted
October 20, 2005
WASHINGTON -- (AP) Owning a home would lose a lot of its tax advantages if a presidential tax reform panel proposal ever becomes law.
Homeowners would no longer be allowed to deduct property taxes and their mortgage interest deductions would be limited under a simplification plan endorsed by the panel. The interest on mortgages above $313,000 -- the Federal Housing Administration limit for the metro area -- would be subject to tax.
The bi-partisan panel, appointed by President George W. Bush in January, is expected to issue a report with several recommendations to overhaul the tax code by Nov. 1. Members, who held their final public meeting yesterday, said they hope the administration and Congress will take up the issue early next year.
While these housing provisions could affect many New Yorkers -- with their high housing values and local taxes -- panel members said other aspects of the plan would soften or even negate the blow.
"You have to look at the whole page and see what's the bottom line," said member Charles Rossotti, a former Internal Revenue Service commissioner. "Most people will not be disappointed."
For instance, the panel is also advocating the elimination of the alternative minimum tax, which plagues many area residents and will ensnare more in coming years. The AMT forces people to pay higher tax bills, in part because it does not allow the deduction of state and local taxes.
Also, dividends to shareholders from tax-paying U.S. corporations would become tax-free under one of the proposals, and long-term capital gains rates would be reduced to between 3.75 percent and 8.25 percent. The panel is recommending reducing the number of tax brackets to four from six, with lower rates for almost every taxpayer, members said.
And it would create new savings accounts that would allow people to sock away tens of thousands of dollars for retirement, education and other needs without paying tax at withdrawal.
Even with these changes, however, many New Yorkers would suffer, said Sen. Charles Schumer (D-N.Y.). Eliminating the state and local tax deduction would impose a $12 billion tax on residents, he said.
"It is a dagger to the heart of the people on New York," Schumer said. "We will do everything in our power to defeat this pernicious proposal."
The proposed reforms would impact people differently, depending on their sources of income, said Clint Stretch, director of tax policy at Deloitte Tax, a subsidiary of Deloitte & Touche USA. For instance, in New York City and on Long Island, individuals whose income comes mostly from investments, which would be taxed at lower rates than wages, would likely pay less tax, while married homeowners with joint earnings of $140,000 could see their taxes jump.
"There could be dramatically different results," he said.
Copyright Associated Press 2005