We are beginning to hear what financial reforms maybe brought forward during 2017. Tax reform is expected to be high on the listof priorities that Congress and the Trump Administration take up this year. I reviewed the reports coming out of the NAR 2017 Federal Policy Conference to get a handle on what might be on the way.
Rep. Kevin Brady (R-Texas), member of the tax policy subcommittee of the Ways and MeansCommittee attended NAR’s 2017 Federal Policy Conference on February8, 2017. Here are some of the ideas he presented which reflect the planning going onin the subcommittee.
The subcommittee is floating a plan to reduce thenumber of tax brackets from seven to three, with tax rates of 33, 25, and12 percent, respectively. They propose increasing thestandard deduction to almost twice its current amount. They would eliminate manyitemized deductions, including those for state and local taxes. Themortgage interest deduction which has been in place since 1913, and thededuction for charitable contributions would remain.
They are considering whether the Federal Governmentshould continue to back mortgages sold in the secondary market. Theybelieve the private sector parties should be better enabled to buy therisk held by Fannie Mae and Freddie Mac. Other legislation would touch ona common securitization platform Fannie and Freddie are working on, whichwould allow private insurers to get into the market more.
Realtors want the federal government to stay in themarket to ensure the viability of affordable, 30-year, fixed-rate mortgagesand also ensure mortgages are available in bad times as well as good.
They are also looking hard at the 1031 exchanges.They wouare listinening to discussions about eliminating them and replacingthem with accelerated write-offs of new business assets, includingbuildings (but not land) in the first year of ownership.
A really big thing the government could do is toloosen some of the Dodd-Frank era regulations to allow housing prices to rise. One of the primary reasons we don’t have enough inventoryin many parts of our country is because the prices are being held artificiallylow. Current appraisal rules and the automated pricing mechanisms used in the bankloan underwriting processes are too restrictive and don’t allow prices to riseto meet the market demand. As a result,we don’t have enough inventory.
It is simple economics; the price is not high enough for supply tomeet demand.
Let us hope 2017 is a year of thoughtful and important tax reform.