Objections may change fate of popular tax credits

The political jostling and frenetic lobbying on Capitol Hill over the tax overhaul bill are producing unexpected developments that could prove important to homeowners.

The drafting of legislative language is a work in progress behind closed doors, but it appears that there have been some key changes in thinking since the White House and congressional Republicans released their “framework” for the tax bill on Sept. 27.

One of the biggest shifts involves deductions of state and local taxes. Republican tax plans have called for a doubling of the standard deduction — to $12,000 for single filers and $24,000 for joint filers — paired with the elimination of a slew of popular write-offs, including state and local taxes.

The so-called “SALT” deduction is among the most widely used in the U.S. tax code, and it includes income taxes, general sales taxes and property taxes. Eliminating it would raise federal revenue by an estimated $1.3 trillion over 10 years; the Republican tax framework badly needs revenue-raisers to counter deep losses caused by rate cuts for corporations and others.

Homeowners — especially in the high-tax corridors of the Northeast, parts of the Midwest and California — are among SALT’s heaviest users. Most of these areas have higher than average home prices and household incomes. They tend to vote Democratic but have some Republican representation.

Those blue-state Republicans, in fact, have been a key force behind the re-thinking on SALT. They know their constituents would be disproportionately affected by a total elimination of the deduction. Among the possibilities:

■ Allowing homeowners to write off property taxes, but not income or sales taxes.

■ Giving homeowners the choice of either writing off state and local taxes or mortgage interest, but not both.

■ Setting a household income ceiling for eligibility to take the SALT deduction.

Another noteworthy area where there’s been some re-thinking: the mortgage interest deduction.

Under the framework proposal, this popular benefit would be left untouched, but doubling the standard deduction would mean that far fewer homeowners would claim it.

In recent weeks, major housing groups, such as the National Association of Home Builders and the Mortgage Bankers Association, have sparked interest in creating a new subsidy: a mortgage tax credit.

Borrowers might be able to subtract some percentage — say 10 or 15 percent — of interest payments off their federal tax bottom line, no matter what their income tax bracket or whether they itemize.