Wednesday, March 12, 2014
The LA Times summarizes the major tax reform proposal floated by Rep. Dave Camp, chariman of the House Ways and Means Committee:
So what did Camp propose? For the vast majority of individuals and corporations, enticingly lower marginal rates of 10% and 25%, plus a substantially increased personal standard deduction — $22,000 for married joint filers, $11,000 for singles. Individuals with annual incomes above $400,000 and joint filers above $450,000 would pay taxes at a marginal rate of 35%.
In exchange, say bye-bye to the mortgage interest deduction in its current form. The $1-million limit on mortgage amounts that qualify for interest deductions would phase down to $500,000 in four annual steps, with no indexing to inflation. This would effectively diminish its value year after year as inflation takes its bites.
The good news on interest deductions: Anyone with an existing mortgage of $500,000 or higher on the date the tax bill takes effect would be grandfathered for the life of the loan. The bad news: Interest write-offs on home equity borrowings, currently limited to $100,000, would be prohibited unless the money was being used to improve your property.
Another set of changes Camp would make: He'd revise the present $500,000 and $250,000 capital gains exclusions for profits on sales of homes by joint filers and single filers, respectively. Under today's rules, you can claim a tax-free exclusion once you've owned and lived in a home for two years out of the preceding five years and you can do so once every two years.
Under Camp's proposal, you'd need to own your house for five out of the preceding eight years to claim a tax-free exclusion and you could exercise this privilege only once every five years. Capital gains exclusions for home sellers with high incomes — $250,000 a year for singles and $500,000 a year for joint filers — would be phased out altogether over a period of years.
Besides these, Camp's tax bill would End all deductions for local property taxes, which he considers subsidies for excessive spending at the local government level.