Tax proposals may lower housing values
A Bush-appointed national advisory group s proposed plans for eliminating mortgage interest rate deductions could have an impact on Park City s thriving housing market. The advisory group recommends either a Growth and Investment plan or a Simplified Income Tax plan. Both plans cut mortgage interest-rate deductions and replace them with home credit plans. Nancy Erni, president of the Park City Board of Realtors, said according to statistics by the National Association of Realtors, the change in the mortgage interest rate deduction could drop home prices by approximately 15 percent. She said tax deductibility on interest paid on mortgages has been a powerful incentive for homeowners in the area and the average homeowner in Park City could lose $20,000 to $30,000 in equity, or residual property value, under the proposed plans. Housing is kind of the engine that drives this economy and to even mention reducing the tax benefit of home ownership could endanger property values, she said. Michael Sloan, branch broker for Commerce CRG, said the interest rates on homes have been reasonably low in the past couple of years. He said people who purchase homes in the average or lower end of the market have been able to afford more expensive homes because monthly payments have been more affordable. He said the net cost of ownership is most important to these people, or the monthly payments and tax deduction and not the selling price of the home. If you own a home, the chances are that it is the only deduction you will have off of your income tax, and to take that away is more devastating on the lower end of the spectrum even than on the higher end of the spectrum, he said. Sloan said if fewer people can afford homes, the demand will decrease and homeowners will have to begin selling their properties at lower prices. Rob Hunt, certified residential appraiser for Resort Appraisal Service, said people might invest their money in areas other than real estate if they can no longer get substantial tax benefits from home ownership. Under the current mortgage interest rate deductions, first and second homeowners can now deduct the interest they pay on home loans. He said that when housing values increase, property owners can refinance and get additional home loans that they can invest in other areas with the interest still tax-free. If people perceive the benefit given to them as less they will be less likely to invest their money in real estate, he said. Bush s advisory group s proposed plans replace mortgage interest rate deductions with a home credit equal to 15 percent of mortgage interest paid. According to Holly Carlin, Certified Public Accountant in Park City, a person with a $200,000 mortgage would get a 15 percent non-refundable credit of $30,000 under the proposed plans. She said the credit would be similar to the child tax credit, where it becomes a set amount. She said until any plans go through it will be hard to tell how it will affect local homeowners. Another element of the proposed plans include lowering the number of tax brackets from six to either four under the Simplified Income Tax plan with a top rate of 33 percent, or three under the Growth and Investment plan, with a top rate of 30 percent. It just means that you are going to have a wider band in each bracket, Carlin said. The current six tax brackets are broken up into 10, 15, 25, 28, 33 and 35 percent tax rates. She said people in the highest brackets sometimes do not get exemptions or child credits. The problem is, we never know until the cat is out of the bag how the whole thing affects the nation as a whole, she said. Sloan said people in the 25, 28 and 33 tax bracket would be most affected by the proposals. He said right now these brackets receive a larger tax deduction than what would be offered under the 15 percent credit. Sloan said the National Association of Realtors and lobbying groups will present their criticisms of the proposed plans at the nation s Capitol in the next two weeks.
Support Local Journalism
Support Local Journalism
Readers around Park City and Summit County make the Park Record's work possible. Your financial contribution supports our efforts to deliver quality, locally relevant journalism.
Now more than ever, your support is critical to help us keep our community informed about the evolving coronavirus pandemic and the impact it is having locally. Every contribution, however large or small, will make a difference.
Each donation will be used exclusively for the development and creation of increased news coverage.
Start a dialogue, stay on topic and be civil.
If you don't follow the rules, your comment may be deleted.
User Legend: Moderator Trusted User