U.S. Senate Republicans voted along party lines (with no Democratic support) to approve a sweeping tax overhaul bill. The U.S. House has one more vote Wednesday, after which, the legislation will be ready for President Trump to sign into law by Christmas.
The bill includes many changes that will affect Vermont's housing sector, according to Sarah Carpenter, executive director of the Vermont Housing Finance Agency, a non-profit created in 1974 to finance and promote affordable housing opportunities for low and moderate income Vermonters.
Carpenter says the final bill does preserve a number of things that support affordable housing.
"But we don't know all of the depth of it and we have some overall concerns around how this might affect appropriations for housing and lots of things that could affect our clients and homeowners. But the housing provisions are adequate," Carpenter said.
There's still more to be learned about the bill's details and how it affects some of the banks VHFA partners with.
"Our good partner T.D. Bank may be affected by this in their purchase of housing tax credits. And that would certainly be a blow to affordable housing," Carpenter explained. "There are other provisions that will affect the markets for some of our investments. Housing tax credits, tax exempt financing with a cut in corporate rates, we're just not sure what that will do the appetite for our investor partners who've really made housing affordable."
Mortgage Interest Deductions
Under current law, people can deduct the interest that's paid annually on mortgage debt up to $1 million on multiple homes. The new bill would lower that cap to $750,000, but that change will have little impact in Vermont.
"In Vermont, there are only about 1 percent of the mortgage holders are between $750,000 and a $1 million. The vast majority, about 75 percent of the mortgage holders in Vermont, have mortgages below $300,000 and about another 20 percent between $300,000 and $500,000."
Home Equity Loan Interest Deductions
Also under the bill, home equity loan interest is no longer deductible. Carpenter says that is a concern.
"About 17 percent of Vermonters have home equity mortgages. They're a very efficient way for many homebuyers to do home repairs, to do energy improvements to their home. We're aware that some home buyers in the past may use it for non-capital items that might not be in the best interest of attaching it onto a mortgage. But rather than eliminating the home equity, I wish they had gone back to just focusing in on, for instance home repair, which they used to do and then they opened it up, rather than eliminating it and entirety."
Property Tax Deductions
Under the current law, taxpayers are able to deduct from the amount that's paid for state and local property tax plus income and sales taxes, on the federal income tax return. Under this new bill taxpayers can deduct only up to $10,000 total, including any combination of state and local. Carpenter says most Vermonters pay under $10,000 per year in property tax and many qualify for the state's income sensitivity program which allows a property tax reduction based on income.
"We are a little worried about the effect on some of our multifamily rental programs and ability to build new homes and how the market will play out with some of our major subsidy sources."
VHFA is the administrator of both federal and state tax credits. Tax credits are purchased by corporations and who take advantage of the credit and provide upfront equity to lower the cost of rental housing, Carpenter explained.
"That's the major way we subsidize housing in the state and in the country. With the change in the markets, we're very nervous about investors' appetites for the credits and along with that in Vermont in particular we use a lot of tax credits that provision in the end remained in and we're grateful for that. But it's stretched over a five year period which will essentially reduce its value."
"On the single family side, we're feeling cautiously optimistic that most potential homeowners and current homeowners will not be too adversely affected," Carpenter said. "But the estimates on the national side, again on the rail side, is maybe up to a 15 percent reduction in the total resources out of these tax advantaged investments."