Few in N.M. may benefit from tax cuts

Any changes for business owners harder to gauge

Within hours after Republican leaders in Congress released their proposed federal tax overhaul, Democrats who represent New Mexico issued statements assailing the plan, particularly those parts that favor the wealthy. But the real impact of the changes on most who live in the state is not that clear, according to some.

“For the 10,000 people in my world, it won’t make a whole lot of difference,” said Peter Doniger, who has probably helped more people in New Mexico file tax returns than anyone. Over the past decade, the Santa Fe retiree has headed up the effort by AARP to offer free tax assistance, helping 10,000 families annually.

“Those with lower incomes and more kids will do a little better; those with higher incomes and older kids will lose a bit,” Doniger said of the proposed changes for individual tax filings.

For business owners, the changes are even harder to gauge.

For small New Mexico companies, “very few” are paying the highest 35 percent corporate tax rate, said Kevin M. Brennan of Kevin Brennan CPA and the Twitter handle @santafeCPA. The House bill calls for reducing the corporate rate to 20 percent, which would help large mega companies like Apple and Microsoft, but probably not

very many in New Mexico where firms operate on small margins.

But there are some aspects of the bill with specific interest to New Mexico:

Many New Mexico families with children under age 17 will see a benefit from a proposed boost in the value of the child tax credit from $1,000 to $1,600. The income phaseout for the credit also rises from $110,000 to $230,000 of taxable income, a move that would extend the credit to families with two working spouses and those in high-wage jobs, such as at Los Alamos National Laboratory.

New Mexico has a higher percentage of filers who take the child credit than other states, according to data from Pew Charitable Trusts, 16.5 percent of filers versus 15 percent nationally.

Very few filers in New Mexico itemize their deductions, which means proposals to remove many specific deductions won’t affect New Mexico as much as other states, according to Pew. In New Mexico, just 22.5 percent of filers have itemized deduction, far below the national average of 30 percent. The average filer in the state that does itemize has deductions of $5,000, compared with $8,500 across the United States.

The current bill changes the deduction allowed for interest on home-mortgage loans by capping the benefit for new buyers at the first $500,000 of the loan instead of the current $1 million limit. Though that will not affect current owners, local real estate professionals are concerned it would dampen future sales around Santa Fe, the state’s most expensive market.

About one-quarter of new home sales in the Santa Fe market are above $500,000, according to Alan Ball, the qualifying broker at Keller Williams Santa Fe, with 650 sales in this price range over the past 12 months.

Perhaps more relevant for Santa Fe is that the deduction would no longer be offered for second homes, often used by part-time residents. Experts agree there are thousands of second homes in Santa Fe, though an exact number is unknown.

“We’re not a coastal state but we are a resort community,” said Donna Reynolds of the Santa Fe Association of Realtors. “It’s going to have an impact here locally.” She said if the change slows that market in the city, it would affect the value of all homes.

Reynolds said the National Association of Realtors is opposing the bill because it would deteriorate home ownership over time. “Home ownership has created wealth for so many families,” Reynolds said. “It’s usually the largest purchase a family will make. The whole package is going to be a real whammy for a lot of folks.”

Another part of the bill with specific interest for New Mexico, especially Santa Fe’s active historic preservation community, is a proposal to eliminate federal historic tax credits. The credits provide incentives for property owners to preserve and rehabilitate older buildings that are deemed to have historic or cultural significance. The program generally allows up to 20 percent of eligible costs to be credited against federal income taxes in the year a project is completed.

The New Mexico Historic Preservation Division, which administers both state and federal income tax credits for preservation projects, says on its website that hundreds of New Mexico property owners have used such programs, generating millions of dollars in private investments.

Elimination of the federal incentives would end a program that the National Park Service, which helps administer the federal credits, says attracts private investment to historic cores of cities and towns.

The National Trust for Historic Preservation issued a statement saying it will “advocate vigorously in support of this vital preservation tool,” which it says has a four-decade track record of saving historic buildings, creating over 2.4 million jobs and returning to the U.S. Treasury $1.20 for every taxpayer dollar spent.

Brennan said a major feature of the proposed tax plan is to simplify tax filings by forcing more taxpayers to take the standard deduction — which now stands at $6,350 for single filers and $12,700 for couples.

Those with expenses beyond those levels — for charitable giving, medical costs, mortgage interest, state and local taxes — have to list these separately by item to claim them as a write-off, often needing to include receipts and documentation.

By doubling the standard deduction, far more families would just file a standard return, which is quicker and easier.

“This change will move a greater number of people to take the standard deduction,” Brennan said. “It could be helpful.”

But as that happens, some think individuals and corporations would have less reason to donate to charity, one itemization available under current law.

Though this deduction is not being changed, “It’s highly likely that this shift away from claiming the itemized deduction will negatively impact charitable giving, ” Brennan said, especially by middleincome taxpayers. An article published Thursday by the The Chronicle of Philanthropy goes further, saying the demise of the estate tax, which could be repealed after six years, and the individual tax changes will have a significant impact on giving.

William Smith, president and chief executive of the Santa Fe Community Foundation, agrees that the doubling of the individual deduction is a big concern and leaders of nonprofit organizations will be working with members of Congress to try and change that.

The tax deduction is “one of the reasons people give,” Smith said, and the small organizations in New Mexico depend on $50 and $100 donations from lots and lots of families. “Nonprofits have come to rely on them.”

According to Pew, 17 percent of filers in New Mexico claimed charitable deductions, with the average return claiming $862 in contributions, below the national average of $1,484.

The New Mexican’s Howard Houghton contributed to this report.