House tax bill will cap mortgage interest deduction, leave 401(k)s unchangedU.S. President Donald Trump, right, and Vice President Mike Pence, left, during a bipartisan meeting with members of Congress on tax reform on Oct. 18, 2017 in the Cabinet Room at the White House in Washington, D.C. (D. Myles Cullen/Planet Pix/Zuma Press/TNS)
The House GOP tax plan would dramatically lower the cap on mortgage interest deductions used by many Californians to loans on newly purchased homes totaling no more than $500,000, down from the current $1 million, according to a draft of the plan released Thursday.
It would also immediately slash the corporate rate to 20 percent from 35 percent, and leave unchanged the popular 401(k) retirements savings plans used by many Americans.
The change in mortgage interest deductions is likely to deliver a significant blow to California homeowners.
Some liberals have long complained the mortgage interest deduction largely benefits wealthier homeowners and wanted to see it limited. But they had hoped to use the savings to pay for more affordable housing, not tax cuts for businesses and the wealthy.
The housing industry strongly opposes efforts to place new restrictions on the deduction, arguing that would lead to lower housing prices because there would be less of a financial incentive to buy instead of rent.
The plan dramatically scales back the deduction for state and local taxes, limiting it in the future only to property taxes and capping the deduction at $10,000. Americans no longer would be able to deduct state and local income or sales taxes, which currently make up about two-thirds of the deduction.
Californians will be hurt by the change. The state has the highest top state income tax rate in the nation but ranks in the bottom third by one measure for property taxes.
The plan would also repeal the estate tax, which affects only the richest Americans, in six years. The estate tax has long been a target of conservatives.
GOP leaders made it clear the initial draft would not be the final product.
House Republicans plan to begin debating the bill in the Ways and Means Committee next week, with more amendments and changes expected before it is sent to the House floor.
Trump wants House passage by Thanksgiving, with Senate passage by the end of the year. Republicans are struggling to achieve a major legislative accomplishment before campaigns gear up ahead of next year’s midterm elections.
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