Final tax bill improves outlook for CT homeowners, students

IRS

IRS Form 1040 tax return

Washington – As House and Senate negotiators of a final tax bill worked to finish the plan Thursday, changes were made that could help Connecticut homeowners and students.

In reconciling differing House and Senate tax bills, GOP leaders agreed to allow homeowners to deduct up to $10,000 in state income tax or local property taxes or a combination of both.

The original House and Senate bills ended the deductibility of taxes paid to state and local governments and capped the property tax deduction at $10,000.

The final bill also would cap the deductibility of interest on new mortgages to those of $750,000, a higher cap than the $500,000 limit in the House-passed bill but lower than the $1 million limit that currently exists.

The elimination and curtailment of these deductions impacts taxpayers in high cost-of-living states like Connecticut more than taxpayers in states where state and property taxes and the cost of homes are lower.

Those living in lower-cost states are likely to benefit more from the tax plan’s near doubling of the standard deduction to $12,000 for individuals and $24,000 for married couples.

The changes in the deductibility of state and local taxes, property taxes and home mortgage interest were made at the insistence of California and New York Republicans, who were concerned about the impact on their constituents of the elimination of the state and local (SALT) deduction, the cap on the deductibility of property taxes and the cap on the deductibility of interest on large mortgages.

Rep. Darrell Issa, R-Calif., wrote House and Senate leaders earlier this week that “done correctly, tax reform has the potential to restore America’s global competitiveness, generate widespread economic opportunity, unleash untold levels of job creation, and allow families to keep even more of their hard-earned paychecks.”

“Done poorly, a tax bill would pick winners and losers, and unnecessarily punish some taxpayers to the benefit of others,” Issa wrote. “As it’s written today, I fear the bill looks more like the latter than the former.”

Details of the final plan began leaking to reporters late Wednesday. GOP leaders plan to release the final agreement on Friday, and vote on it in the House and Senate early next week.

The final tax plan will allow taxpayers to continue to deduct high out-of-pocket medical expenses, a deduction that had been eliminated in the House bill.

It also will allow graduate students who receive tuition waivers to avoid paying taxes on that benefit. It also restores the deductibility of interest paid on student loans.

The final bill also keeps federal bonds that school systems use to finance construction interest free.

The final bill will keep a new 1.4 percent excise tax on the endowment of a handful of private colleges and universities, including Yale, but it is unclear what the threshold will be. The House plan called for taxing endowments worth at least $250,000 per full-time student, while the Senate doubled the cap.

Negotiators agreed to lower the top tax rate for individuals and families to 37 percent.

Their agreement would cut the top corporate tax rate to 21 percent, which is much lower than the current 35 percent rate but higher than the 20 percent initially sought by GOP leaders.

No Democrat in the House or Senate is expected to vote for the final tax overhaul, which means the GOP cannot lose more than two votes in the Senate.

Democrats say the tax bill is a giveaway to the rich at the expense of working Americans and dispute GOP arguments that it will spur enough new economic activity to make up for the $1.5 trillion it would otherwise add to the deficit.

“The tax bill is a massive, unnecessary give-away to corporations which aren’t asking for it and people who want to hand millions tax-free to their children,” Rep. Jim Himes, D-4th District, recently tweeted.

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