[T]he federal tax bill Congress passed this week could mean changes for many Vermont homeowners.
Earlier drafts of the legislation caused housing advocates to worry that the proposals would hurt affordable housing initiatives in Vermont.
“In many ways the runup to the vote and the various proposals that were being considered were going to be far worse for Vermont than what actually ended up passing,” said Maura Collins, deputy director of the Vermont Housing Finance Agency, on Wednesday.
For homeowners
The tax bill lowers the home mortgage amount that qualifies for an interest deduction.
Under current law, interest is deductible for home mortgages of up to $1 million. The new law will lower the cap to $750,000.
Only about 1 percent of home sales in Vermont last year had a mortgage of the value that would be affected by the reduction in the cap, according to Collins.
“We expect that will have very, very little impact on most Vermonters,” Collins said.
However, the number of people who take the deduction may decrease because of changes the bill makes to the standard deduction.
Under the new tax code, the standard deduction will be roughly doubled for individuals and households.
A report by the online real estate company Zillow found that currently 84 percent of homes in Chittenden County have mortgage interest high enough in the first year for the owner to opt for that deduction, rather than the standard deduction.
With the new standard deduction, the percentage of Chittenden County homes where it would make more sense for the owner to deduct the mortgage interest drops to 17 percent.
The tax legislation also eliminates a provision that allowed homeowners to write off interest on home equity loans.
Homeowners often use those loans to make improvements to their properties, like installing solar panels, Collins said.
She said census data show that about 20,000 Vermont homeowners, or 17 percent, had a home equity loan in 2016.
Some Vermont homeowners may also be affected by a $10,000 cap on deductions for state and local taxes. The cap is for a combination of income, property and sales tax.
Under current law, Vermonters could deduct their state and local taxes from the federal taxes without a limit.
Collins said the Vermont Housing Finance Agency expects the cap will not affect the majority of homeowners for property taxes alone. According to the agency’s review of grand lists around the state, only about 5 percent of Vermont homes have property tax bills over $10,000.
Meanwhile, homeowners in some parts of Vermont are inquiring about paying their property taxes before the state and local tax deduction cap takes effect. The Valley News reported that some towns in the Upper Valley have had many inquiries about paying their property taxes by the end of the year.
Vermont Tax Commissioner Kaj Samsom said his department is aware that some towns have had questions from residents about paying property taxes early, ahead of when the new federal tax law is enacted. He said Vermonters should consult their tax advisers about prepaying property taxes.
Affordable housing spared
The final tax bill does not include many of the provisions that had affordable housing advocates across the country concerned.
“Really, we dodged a bullet,” Collins said.
Erhard Mahnke, of the Vermont Affordable Housing Coalition, agreed.
An earlier draft of the bill would have eliminated the tax-exempt status of private activity bonds, a key financing tool for affordable housing, and nixed tax credit programs for downtown development and historic rehabilitation.
Those tax benefits are preserved in the final legislation.
There are some changes that could influence development of affordable housing in Vermont, according to advocates.
According to Collins, affordable housing is largely funded by tax credits rather than appropriations. The appetite for those tax credits may decline with the lower corporate tax rate, which the bill drops from the current 35 percent to 21 percent.
The final bill also eliminates the nonhistoric rehabilitation credit, which is used for nonresidential buildings. That could affect downtown projects, according to Collins.
However, a rehabilitation credit that is used for registered historic buildings was preserved.
Development of affordable housing in Vermont may also be affected by a new tax targeting foreign banks. That could hinder development in Vermont because TD Bank, a subsidiary of The Toronto-Dominion Bank in Canada, has historically been a major player in Vermont.
Collins said it isn’t clear what the impact will be in the long term, but the bank will not have the same benefits for involvement in affordable housing going forward.
Mahnke said he has broader concerns about economic inequity associated with the bill.
“This bill is going to overall increase wealth and income disparity in the United States,” Mahnke said.
Editor’s note: This article was updated Dec. 21 at 10:02 a.m. to clarify the state and local income tax deduction cap.