Closing Tax Loopholes

From RealtyTimes:

Congressional Committee Proposes Crackdown on Homeowner Tax Writeoffs
by Kenneth R. Harney

Have you been writing off your mortgage interest and real estate taxes correctly on your federal income tax filings? Or maybe not?

Whatever your answer, an influential Capitol Hill committee believes tens of thousands of homeowners have been deducting a lot more than they should — to the tune of hundreds of millions of dollars a year.

Now the nonpartisan congressional Joint Committee on Taxation has proposed to the Senate and the House that they consider plugging two revenue-losing loopholes in the system, and crack down on homeowners who are deducting too much.

In a new report released last week, the staff of the committee recommends requiring local governments or mortgage lenders to annually report to the IRS the itemized details of the property tax payments claimed by millions of homeowners. Property tax deductions now cost the federal government $20 billion a year, according to committee estimates. A 1993 federal study found that approximately $400 million of that year’s property tax writeoffs were improperly claimed — a figure that could easily be double that today.
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The committee also believes that homeowners who do cash-out refinancings may be writing off mortgage interest improperly — claiming deductions on more than the $100,000 in home equity debt the tax code permits.

To close both loopholes, the committee proposes requiring all mortgage lenders and servicers to report whether new loans are refinancings, and whether the refi resulted in a new loan more than $100,000 larger than the mortgage it replaced.

The committee staff’s recommendations are often highly influential and find their way into law. So don’t be surprised if the new real estate proposals surface early in the new Congress next year for inclusion in a major tax bill.