On December 20, Congress finally sent H.R. 1, the Tax Cuts and Jobs Act, to the President’s desk for signature.
After significant improvements made during the legislative process, and due to the robust engagement efforts of NAHB and its membership, NAHB issued our support for the final tax bill.
Changes to the tax code will take effect for the tax year starting January 1, 2018, and include the following provisions of note to NAHB’s membership:
· Mortgage interest deduction. Retains the mortgage interest deduction and the deduction for second homes, but reduces the mortgage interest cap from $1 million to $750,000.
· State and local property taxes. Allows taxpayers to deduct up to $10,000 of state and local taxes, including property taxes and the choice of income or sales taxes.
· Capital gains exclusion. Maintains existing law that allows home owners to exclude up to $250,000 (or $500,000 for married couples) in capital gains on the profit from the sale of a home if they have lived in the house for two of the last five years.
· HELOC. Eliminates the deduction for interest on home equity loans.
· Private activity bonds. Retains private activity bonds (PABs), which will enable the Low Income Housing Tax Credit to maintain its effectiveness as the most indispensable tool for the production of affordable housing. Without PABs, we would face the loss of more than 788,000 affordable rental units over the next decade.
· Alternative Minimum Tax. Eliminates the Alternative Minimum Tax (AMT) for corporations and increases the AMT exemption amounts and phase-out thresholds for individuals.
· Individual tax brackets. Retains seven tax brackets, with rates ranging from 10% to 37%. This will provide tax relief for individuals and small businesses and represents a tax cut for most taxpayers.
· Estate tax. Doubles the estate tax exemption.
· Carried interest. Retains existing carried interest rules, but assets must be held for three years.
· Pass-through deduction. Allows most taxpayers with pass-through income to deduct 20% of that income based on wages or on wages plus a capital element.
· Business interest deduction. Provides the taxpayer a choice of making a one-time election for a deduction limited to 30% of adjusted gross income; or for real estate, a 100% deduction for business interest, but with certain tradeoffs.
· Like-kind exchanges. Preserves the benefit for real estate investors to make tax-free exchanges of property, commonly referred to as “like-kind” exchanges.
· Multifamily depreciation. Gives the taxpayer the choice of taking 27.5- or 30-year depreciation, depending on how they elect to treat their business interest.
· Individual tax provision sunsets. Almost all individual tax elements – mortgage interest, state and local property taxes, individual brackets, etc. – expire at the end of 2025. Unless Congress acts, starting in 2026 these modifications will revert back to the tax code as it exists today in 2017.
President Trump today signed into law landmark tax reform legislation.
“NAHB commends President Trump and members of Congress for their hard work and dedication in crafting this once-in-a-generation overhaul of the nation’s tax code,” said NAHB Chairman Granger MacDonald. “Providing tax relief for hard-working families and creating a more favorable tax climate for small business will make the economy more vibrant and competitive. In turn, this will boost the housing sector, which represents roughly one-sixth of the U.S. economy. Housing not only equals jobs, but jobs mean more demand for housing.”
Throughout the tax reform debate, NAHB and our grassroots were at the forefront of the legislative process. We held several meetings with House Ways and Means Committee Chairman Kevin Brady, along with other committee members and staff, while builders engaged with key House and Senate lawmakers in their home districts and at their offices on Capitol Hill.
Thanks to the efforts of the entire Federation, NAHB achieved significant victories on the real estate exception to the business interest deduction, second homes, private activity bonds, the capital exclusion, and many other provisions.
Under the new law, the majority of taxpayers will receive a tax cut, including working class home owners and renters, small business owners and our members who are engaged in all aspects of the residential construction sector. Lower tax rates will spur job and economic growth, and that is good for housing.
An overview of the Tax Cuts and Jobs Act, with all changes taking effect for the tax year starting Jan. 1, 2018:
Last week we had the opportunity to present a few brief comments to a Sussex County Planning and Zoning Commission public hearing, as they work thru their Comprehensive Plan update.
The current draft plan, available at the website www.sussexplan.com., will be the overall planning tool as they move forward with future land use and growth goals for Sussex County.
In one chapter of their draft plan, they echoed the use of density bonuses for developers, in exchange for voluntary preservation of natural resources, especially in Environmentally Sensitive Developing Areas. Though our comments were not confined to these specific areas, we forwarded earlier this year our policy statement to recommend increased density for property owners for the protection of natural resources. Glad to see they saw merit to our ideas.
We also subsequently submitted the recent study that demonstrates how each new home built in Delaware produces 4.25 permanent new jobs in Delaware.
We also noted to Sussex County that our National Association of Home Builders will review the current draft comprehensive plan and offer comments and suggestions.
Last week our HBADE President Jim McCulley appeared before the EPA in Washington D.C. and testified along with our National Association of Home Builders. Although there were other groups present at this meeting, only two representatives from NAHB were permitted to attend – the NAHB staffer and Jim.
The topic of discussion was Waters of the United States (WOTUS). The current administration issued Executive Order to rescind the previous Administration proposed rules and to solicit comments a write a new rule that would be more balanced and reflecting the intent of the Congress and Supreme Court. As such, EPA and ACOE are holding a series of listening sessions and asking for comments from different sectors. As Jim is one of a handful of Professional Wetlands Scientists, he is eminently qualified to present fair, balanced comments that protect our waters while not unreasonably stifling or regulating land development and home building
Additionally, NAHB has been asked to propose a framework for the new rule for consideration and Jim is assisting NAHB Staff with that
said the Washington Post. The House plan to double the standard deduction, end personal exemptions and repeal the deduction for state and local taxes “is a bad bill for the housing sector,” NAHB CEO Jerry Howard told Fox Business.
“All the resources we were going to put into supporting are now going to go into opposing the plan,” Howard told Politico.
The House is set to release its proposal Wednesday. NAHB will continue to keep members informed of its progress. “We will not rest until Congress guarantees us that homeownership will remain as a centerpiece of our tax policy,” said NAHB Chair Granger MacDonald.
We are pleased to announce that the Public Service Commission approved this week a requirement for water utilities in Delaware (Order # 9124) to notify developers and or home builders if there might be offsite costs to the builder/developer to run water service to their new project.
These costs, titled Contributions in Aid of Construction (CIAC) Category 1B, represent the costs (generally, offsite costs directly assignable to a project to run from the project to the utility main) to provide water. The water utility must also provide an estimate of costs, although these costs may change over time.
We have been involved with this matter since early this year, including appearing and testifying at the public workshop. Kudos to our member Kevin Kelly and his firm Leon N Weiner & Associates for their invaluable help on this matter. They were involved with a project that initiated the public workshop, and in fact besides attending meetings and testifying, Kevin prepared proposed language for the final order which was approved by the PSC this past week.
Prior to this new PSC order, there were no regulations requiring prior notification of offsite costs, which in Kevin’s instance amounted to over $400 thousand dollars.
Developers, builders and their engineering consultants are encouraged to review Order 9124 for complete details. We also strongly encourage that you establish early and regular communications with your water utility company especially if the project is delayed. As we noted, the offsite Category 1B costs can change over time.
Download a copy of the order below.
We recently commissioned an economic study by the economists at the National Association of Home Builders, on the economic impact of housing in Delaware.
They prepare two reports:
1. The Economic Impact of Home Building in Delaware: Comparing Costs to Revenue for State and Local Governments, and
2. The Economic Impact of Home Building in Delaware: Income, Jobs, and Taxes Generated
(click each title for a copy of the report)
Did you know that each new home built in Delaware creates over 4 permanent new jobs in Delaware, in the year the home is built. And one additional permanent new job for each year afterwards.
Currently, the process to turn over open space in New Castle County is problematic. This is not meant as a disparaging comment to County land use officials, as the process is widely viewed as needing remediation and improvement.
Toward that end, the Home Builders Association of Delaware is forming a committee which will springboard off a series of workshops the County held, to look at the process so that we can prepare and submit proposed recommended changes to the Code.
A committee will be formed shortly. Anyone wanted to participate should contact HBADE at firstname.lastname@example.org.
Last week we had 2 special tasks/events which demonstrate how we continue to look out for our members.
First, we will be participating with New Castle County, they invited us and the engineers (ACEC Delaware) to a workshop later this month to help review and update several development requirement checklists (sediment and stormwater submissions, record plan engineering checklist, and retaining wall checklists). By having a say in the checklists, we can help ensure that requirements are fair and reasonable, and help improve the land development plan.
Our other, we attended a Public Service Commission meeting last Thursday afternoon, where they agreed to develop a process and procedure for water companies to notify developers when there may be additional offsite costs related to new projects. These costs, called Category 1B costs, are known as Contributions in Aid of Construction (CIAC), and are the offsite facility costs directly assignable to a specific project. Recently there was a project in which the communications of these CIAC costs did not occur and the developer faced several hundred thousand dollars of unforeseen CIAC costs, after the fact, for a new project. As HBADE and several of our members have been involved with this matter over the last several months, the PSC has agreed to forward a draft of the proposed order for our input.