Tax Reform: Bad News for Middle-Class Homeowners?
NAR recently released a PriceWaterhouse Coopers (PwC) study analyzing the impacts current tax system overhaul proposals would have on the real estate market. Among the findings:
- Homeowners earning between $50,000 and $200,000 would experience an $800 annual tax increase on average, compared with a tax decrease of $500 for renters of similar incomes;
- Housing prices would experience a 10% decline nationally, with high-cost areas experiencing larger losses; and,
- Homeowners who itemize can expect to lose $1.1B in annual tax savings.
Though these are just proposals and no legislation to enact them has been proposed, NAR remains fully engaged in the debate to ensure the continued favorable tax treatment of homeownership. For a look at NAR’s Tax Reform Fact Sheet or to read the full PwC report, click here.
Flood Insurance Extension Bill Introduced
At the end of May, the House Financial Services Committee released draft legislation to reauthorize the National Flood Insurance Program (NFIP) beyond its current September 2017 expiration. NAR is reviewing the draft and will participate in the Committee markup, which is expected in June.
While NAR is hopeful that Congress will agree to a long-term extension, they are most concerned with avoiding another program lapse. During the previous two program shut-downs, over 40,000 home sales transactions were stalled or cancelled. Visit NAR’s website to read more about the discussion draft or to learn more about the importance of the NFIP to the real estate market.
Housing Allocations, School Enrollment Availability on County’s Agenda
Two bills addressing future growth allocations under the County’s Adequate Public Facilities Ordinance (APF) will be introduced and considered by the Council this month. CR-96 outlines the number of new housing units that may be constructed in each region and downtown Columbia between 2020 and 2029. A related bill, CR-97, outlines the school enrollment areas which will be closed to new development due to capacity issues. Six elementary school districts, one elementary school region, and six middle school districts are projected to be labelled as “closed” to new development in 2020, with additional schools to be added in the years to follow.
These bills will be introduced on June 5, with the public hearing expected on June 19.
Federal Housing Provisions on the Chopping Block?
The hottest topic – and top lobbying priority – for this month’s NAR Legislative Meetings is the tax reform blueprint released by the Trump Administration. Among the proposals is a doubling of the standard deduction, lowering of marginal income tax rates, and elimination of the state and local tax deduction. Though this debate is only in preliminary stages, NAR is taking an active role in preserving the favorable tax treatment of homeownership.
NAR has long advocated for simplification of the tax code and lower marginal tax rates to spur economic activity and investment. However, based on what is known about the current plan, these lower rates would come at the expense of the real estate industry. Raising the standard deduction reduces the value of itemizing deductions like the Mortgage Interest Deduction (MID), which is compounded by the loss of the state and local tax deduction. NAR’s economic analysts have conducted preliminary studies showing a potential 10% drop in home values nationwide, average tax increases for homeowners of $800 annually, and tax decreases for renters of $500 annually.
Maryland homeowners would be particularly hard-hit by these measures. The state ranks #5 in the country on the use of the state and local tax deduction. According to the Tax Policy Foundation, approximately 45% of Maryland filers claim this exemption, with credits averaging 7.7% of area median income (AMI). In addition, Maryland has historically been among the highest, if not the highest, in both the use (37%) and the value ($11,000 per claimant) of the MID.
NAR will continue to monitor developments on the tax reform front as the issue moves through Congress. To learn more, click here.
NAR Outlines 2017 Lobbying Priorities
In addition to their work on tax reform, NAR lobbyists are also pushing several advocacy priorities at the federal level. These include:
NFIP: NAR will continue to press Congress to approve a long-term extension of the National Flood Insurance Program without any lapses in program coverage.
Fannie/Freddie: Any reform measure must preserve a 30-year mortgage guarantee. In addition, NAR will seek changes to ensure that federal mortgage fees (G-fees) are used only for homeownership and GSE solvency measures, rather than for unrelated spending.
Health Care Reform: NAR will continue their long-term advocacy for affordable health insurance coverage options for the self-employed on the individual market.
Additional information on these and other issues can be found on the NAR Federal Advocacy website.
Howard Budget Update: Tax Rates, Remaining Hearings
Earlier this month, the Howard County Council held a constant yield public hearing to set the property tax rate for FY 2018. The advertised property tax rate remains unchanged at $1.014 per $100, along with a fire and rescue tax of $0.176. In addition, the Council will keep recordation tax rates steady at $2.50 per $500 and the personal property tax rate at $2.535 per $100. These tax rates will support County budget growth of approximately 5.7% over FY 2017, including a $10 million increase in public schools funding.
The County Council will continue work on the FY 2018 Budget in the coming weeks, with final adoption currently scheduled for May 24. Remaining public hearing and work session information can be found here, and copies of the operating and capital improvement budgets are available on the County website.
County Looks to Extend, Expand Tax Relief Provisions
This month, the Howard County Council will consider extending two tax breaks currently available to certain businesses and residents. First, CB 33-2017 would extend tax credits for rehabilitated and restored properties in the Rt. 1 corridor for an additional 24 months to allow for completion of a study on that real estate market. Also under consideration is CB 34-2017, which allows owners of highly energy efficient buildings to continue claiming a tax credit until 2023. Both bills will be heard at a public hearing on May 15, with final approval to follow.
In addition, Howard County Delegation bills offering new, limited forms of tax relief have passed the General Assembly. They include:
Ellicott City Flooding: HB 566 allows personal property tax exemptions for businesses in Historic Districts for taxable years 2017-2022; HB 572 allows the County to offer property tax credits to flood damaged properties.
First Responder Home Purchases: HB 1604 grants full and partial exemptions from real estate transfer taxes for police and fire and rescue personnel who purchase homes in Howard County.
Battling BATs: Septic Bills Halted in Howard, Annapolis
Based on feedback from REALTORS®, two bills to require installation of Best Available Technology (BAT) septic systems were defeated, saving area homeowners as much as $10,000.
In March, the Howard County Council considered restoring major subdivision rights to landowners who were downzoned when the County adopted growth tiers in 2013. The only condition was that those subdivisions must use BAT septic systems. HCAR provided comments and testimony before the Council which stated our total opposition to the imposition of BAT systems, even to re-establish property rights. As a result, the measure was withdrawn.
REALTOR® letters submitted through MAR’s Call for Action were a deciding factor in turning back a proposal to again mandate BAT system use in virtually every part of the state. Citing a lack of scientific support for the requirement and the significant costs of these systems, the Maryland Senate amended SB 266 to limit BAT usage to only critical areas, which is consistent with current practice. The House did not consider the bill before adjournment, leaving existing septic system guidelines in place for at least another year.
State Legislation Round-Up
Septic systems were not the only topic of interest in the 2017 General Assembly session. REALTORS® can claim the following policy victories as well:
Open Houses: HB 760, which allows REALTORS® to discuss surrounding properties with open house attendees if the seller consents, passed both chambers unanimously.
Mortgage Forgiveness: SB 367 provides state tax relief for forgiven mortgage debt of up to $100,000 for individual tax returns or $200,000 for joint returns. It awaits the Governor’s signature.
Homebuyer Tax Credit Study: HB 230, establishing a state income tax credit for contributions to a homebuyer savings account, did not pass this session. However, the proposal was very favorably received by the General Assembly and the Department of Taxation, and is expected to be studied before the beginning of the next General Assembly session.
In addition, MAR opposed the following proposals, which were harmful to real estate:
Jury Trials in Eviction Proceedings: As originally drafted, SB 501 would have allowed tenants being evicted to choose a trial by jury. This bill was amended to allow jury trials only for amounts over $15,000, before being killed in the House.
Transfer Tax Increase: SB 812 would have increased the real estate transfer tax by up to $250 for residential and commercial transactions. The transfer tax portion was stripped from the bill in the Senate before being left in the House.
Carried Interest: HB 915 would have imposed an additional 19% tax on revenues currently excluded under the carried interest exemption. It was estimated that businesses operating as pass-through entities in Maryland would have paid an additional $60-$70 million in taxes annually. It did not receive a hearing in the House.
Budget Bytes: Howard Outlines Spending Priorities for FY18
The Howard County Council budget process for Fiscal Year 2018 is now underway – and HCAR is working for you every step of the way! County Executive Alan Kittleman has released his Capital Budget proposal, which outlines new construction and public works projects. The largest segment is dedicated to school system expansion, while also including funding to prevent flooding in Ellicott City. Highlights of the proposal are posted on the County’s website.
Over the coming weeks, Council Members will hold numerous work sessions and public hearings on both the operating and capital budgets. The full schedule of those meetings can be found here. Of particular importance to homeowners and REALTORS® is the Constant Yield Hearing on May 1. At this hearing, the Council will consider whether to set the property tax rate at an amount that would provide more property tax revenue than the current year. If you would like to speak at this or any other budget hearing, sign up on the County website.
Finally, the Spending Affordability Advisory Committee released their report on methods Howard County may employ to meet future capital construction needs. One of the suggestions was to seek an increase in the local transfer tax to benefit school construction. HCAR sent a letter to Executive Kittleman expressing our opposition to any change in the transfer tax rate, which must be granted by the General Assembly. We will continue to work with members of the Council, the County Delegation and Executive Kittleman on this issue.
Council Passes Measures for Ellicott City, Septic Systems, Accessibility
On February 6, the Howard County Council passed several measures aimed at helping area landowners. They include:
CB6-2017 – Howard County offers a Historic Tax Credit Program to protect property owners from increased assessments resulting from significant renovations, improvements or restorations to historic properties. This bill expands the tax credit to include interior as well as exterior improvements, and to provide a streamlined approval process in the case of renovations due to natural disasters. It is expected that this will further assist properties impacted by flooding in Ellicott City.
CB7-2017 – The Livable Homes Tax Credit was enacted in 2012 to offset the cost of installation of accessibility features in existing owner-occupied residences in Howard County. This bill expands the types of home improvements that qualify for the Livable Homes Tax Credit and increasing the maximum credit available. These improvements now include the installation of railings, level handles, non-slip flooring, and zero-step entry between interior and exterior rooms. It also provides reimbursement to homeowners who engage a certified aging in place specialist to conduct an assessment of accessibility needs on the property.
CR16-2017 – Under its Federal Stormwater Management Permit, Howard County is required to improve its water quality. One of the most cost effective ways for the County to do this is for its residents to regularly pump their septic tanks. To encourage this practice, the County will now provide a $100 credit once every three years to homeowners who regularly pump out their septic tanks using a permitted septic hauler.
DRP Seeks Homeowners for Tick Reduction Study
Howard County Department of Recreation & Parks (DRP) today announced it has begun a study to evaluate integrated tick control strategies on single-family home sites located adjacent to selected large public lands in Howard County. They include: Cedar Lane Park; Centennial Park; Rockburn Branch Park; David Force Natural Resource Area; Middle Patuxent Environmental Area; Blandair Park and the Wincopin Trail of Savage Park.
The study’s goal is to identify the most effective way to control ticks in residential areas and to reduce the overall tick population density in suburban landscape across Howard County and the state. Click here for more information or contact the DRP Natural and Historic Resources Division at 410-313-1679.
2017 MAR Lobbying Agenda Announced
The Maryland Association of REALTORS® (MAR) is pursuing several initiatives to benefit the state’s home owners, home buyers and REALTORS®. Their agenda:
- OPPOSE efforts to mandate Best Available Technology (BAT) septic system installation outside of Maryland’s critical environmental areas, as in HB 281/SB 266. Read more.
- SUPPORT the creation of tax-deductible first-time homeowners savings accounts, as in HB 230. Read more.
- SUPPORT grant funding to offset the costs of installing sprinkler systems in residential properties. Read more.
- SUPPORT granting additional flexibility for agents to discuss nearby properties with open house attendees, with a seller’s consent, as in HB 760. Read more.
The Legislative Committees at both MAR and HCAR are monitoring these and other bills introduced in the 2017 General Assembly session. Check your email for future Calls-to-Action on these issues as the session progresses.
NAR Comments on NFIP Reform
In late January, NAR provided official comments to the House Financial Services Committee on the principles guiding reform of the National Flood Insurance Program (NFIP). NAR’s call for enhanced flood mapping, program flexibility and additional private market options are currently under consideration by the Committee. However, NAR requested further clarification on several aspects of the proposal which affect homeowners, including the structure and cost of a new reinsurance mandate and the proposed phase-out of NFIP coverage for high value properties.
The current NFIP authorization expires in September; NAR is seeking a full five-year reauthorization of the program. Click here for additional information.
FHA Mortgage Premium Deduction Caught in Federal Regulatory Freeze
As part of a government-wide freeze on new and pending regulations, the Trump Administration halted a planned decrease in the mortgage premium rates charged to FHA borrowers. The reduction, announced in the final days of the Obama Administration, would have lowered premiums 25 basis points to a level of 0.85 percent beginning on January 27.
NAR had favored the rate reduction, noting that the average FHA borrower would save over $500 per year. NAR has already initiated discussions with newly-confirmed HUD Secretary Dr. Ben Carson on the issue, beginning with this January 30 letter. For the latest on this and other federal housing news, visit NAR’s Washington Report.