Are the rules of the game changing for real estate ownership?In early 2005 the Bush Administration announced the establishment of a bipartisan panel to recommend options to reform the tax code with a goal to make the tax law simpler, fairer, and to promote long term economic growth and the creation of jobs. The Presidential Advisory Panel on Tax Reform recently released its recommendations. Among other changes, the panel is suggesting eliminating the personal mortgage interest deduction Mortgage interest deduction A federal tax deduction for interest paid on a mortgage used to acquire, construct, or improve a residence. on first and second homes, in lieu of Instead of; in place of; in substitution of. It does not mean in addition to. giving a 15% credit of mortgage interest paid on primary homes. In addition, a $1.1 million limit on mortgages eligible for the current tax break would shrink shrink Vox populi noun A psychiatrist to the average regional price of housing, ranging from $227,000 to $412,000. They also proposed the elimination of the deduction deduction, in logic, form of inference such that the conclusion must be true if the premises are true. For example, if we know that all men have two legs and that John is a man, it is then logical to deduce that John has two legs. for state and local taxes which includes property taxes paid. Tax legislation can brutally effect the real estate industry. Just think back to 1986's enactment of the passive loss rules, which significantly curtailed the deductions available to real estate investors A real estate investor is someone who actively or passively invests in real estate. An active investor may buy a property, make repairs and/or improvements to the property, and sell it later for a profit. , setting the stage for a major decline in real estate values that lasted for more than a decade. Home values over the last five years have escalated dramatically, causing buyers to borrow more money and put less money down. Low interest rates and equity built up in their homes has also allowed many homeowners to borrow that equity to finance spending they might not otherwise have afforded. As a result, eliminating these deductions and rising interest rates will hurt middle class families the most. Without the housing engine to drive the economy, property values and economic growth may be in danger of decline. There is a long way to go before those recommendations can become law. Lets hope history does not repeat itself on this one. Aside from negative changes to real estate tax policy and excessive interest rate hikes, real estate values should likely sustain (albeit slower) appreciation from these levels and perhaps stabilize stabilize See peg. for a term with a soft landing. MICHAEL A. MONGELLI CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. SAX, MACY, FROMM & CO. |
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