House Republicans released detailed legislation for the most comprehensive tax system overhaul in three decades.

In a dramatic departure from a preliminary tax reform plan unveiled earlier this year, the latest draft of what’s been dubbed the Tax Cuts and Jobs Act, authored by House Ways and Means Chairman Kevin Brady, would limit the mortgage interest deduction to new and existing loans of $500,000 and under, down from $1 million, and cap property tax deductions at $10,000.

Released Thursday to members of Congress, the revised proposal would disproportionately impact high-earning homeowners reeling from high property taxes on the West Coast and Northeast while potentially reducing the incentive for millions of Americans to buy new homes.

The Trump administration’s original tax framework included a proposal that would potentially jeopardize homeowners with a $70 billion annual tax expenditure by doubling the standard tax deduction, housing experts warned at the time.

The latest reform plan raises the standard deduction from $12,700 to $24,400 (married), $9,350 to $18,300 (head of household), and $6,350 to $12,200 (single), the Wall Street Journal reported.

“One of the major advantages of homeownership is that deduction, and if people choose not to use it because of the doubling of the standard deduction, it will remove, to a degree, the incentive to buy a home, said Matthew Gardner, chief economist at Windermere Real Estate, citing numbers by the Tax Institute Center that project that the percent of filers claiming the deduction would plummet from 21 percent to just 4 percent should the bill become law.

The revised proposal, meanwhile, would maintain a plan to reduce the tax rate on limited liability companies and other so-called pass-through entities to 25 percent, but would be limited to passive owners, leaving principal investors with a blended top tax rate of 35 percent.

As new details of President Trump’s tax code reform gradually came to light Thursday, real estate industry trade groups cautiously doubled down on earlier criticisms of the proposal.

“We are currently reviewing the details of the tax proposal released today, but at first glance it appears to confirm many of our biggest concerns about the Unified Framework,” said  National Association of Realtors President William Brown in a statement to Inman News.

“Eliminating or nullifying the tax incentives for homeownership puts home values and middle class homeowners at risk, and from a cursory examination this legislation appears to do just that,” Brown added. “We will have additional details upon a more thorough reading of the bill.”

The mortgage cap and limited property tax deductions threaten to jeopardize high-income taxpayers with expensive homes, according to the Wall Street Journal. The plan also maintains the top bracket of 39.6 percent for high-income households and would phases out the estate tax, which includes estates worth approximately $5 million or more, according to the report.

For professional services firms — a definition that could extend to include real estate brokerages in addition to law firm and financial advisers — the proposed 25-percent pass-through rate may no longer apply, as the default rate would be considered 100-percent labor income.

“This bill leaves too many small businesses behind,” said Juanita Duggan, CEO of the National Federation of Independent Business (NFIB), in a statement. “We are concerned that the pass-through provision does not help most small businesses. Small business is the engine of the economy. We believe that tax reform should provide substantial relief to all small businesses, so they can reinvest their money, grow, and create jobs.”

Aaron Lesher, CPA and head of customer success at Hurdlr, said he “tends to agree” with the NFIB that the new rates don’t do enough to help small businesses, but he sees where real estate professionals may still be able to benefit from the changes.

“Even though real estate agents could be considered professional service providers, the nature of their brokerage relationship is usually that of an independent contractor,” Lesher said. “Since real estate brokerages don’t typically withhold taxes for their agents or provide many benefits outside marketing, and agents are still responsible for business expenses and taxes, agents would still be viewed as businesses and be able to claim the 25 percent treatment.”

Short on details and broad in scope, the earlier proposal, negotiated over several months among a group known as “The Big Six,” including Treasury Secretary Steve Mnuchin, National Economic Director Gary Cohn and top House and Senate Republicans, would have lowered corporate rates from 35 to 20 percent while slashing the number of personal tax brackets from seven to three.

The revised plan holds true to the corporate rate of 20 percent, but breaks down the tax brackets into four groups rather than three: 12 percent, 25 percent, 35 percent and 39.6 percent, according to the Wall Street Journal.

Editor’s note: This story has been updated with additional details about the tax plan.

Email Jotham Sederstrom

Show Comments Hide Comments
Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Success!
Thank you for subscribing to Morning Headlines.
Back to top
×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription
×