Bonus Episode! The Tax Bill Becomes Law

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- Welcome to the advocacy scoop,
the podcast that takes you

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inside the advocacy work
of the National Association

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of Realtors connecting NAR members

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with their advocates in
Washington for a front row seat

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to the fight for public policy
that strengthens the ability

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of Americans to access property ownership.

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- Hello everyone and welcome
to the advocacy Scoop podcast.

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I'm Patrick Newton here

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with Shannon McGahn in the
artist's Chief Advocacy Officer

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and executive vice president.

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And if you joined us in our last episode,

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we were talking about the
one big beautiful bill act

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that is its official title, HR one,

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and it was moving through
the senate at the time

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and it has now since become law

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and we now have some good
news to report that many

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of the real estate provisions

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that we spoke about in the last episode

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did make it into law.

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So we're gonna jump into last
month's episode right now

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and I will come back in
with a quick recap of

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what actually made it into law.

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Again, the bill was signed by
President Trump on July 4th.

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Alright, so first real estate provision.

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Let's talk about qualified
business income deduction.

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So how, how does the
Senate version compare

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to what passed the house?

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- So what we've seen in the Senate,

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it keeps the qualified
business income deduction.

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So that's 1 99 A is what we're
commonly referring that to

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at the 20%.

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The house wanted to increase it to 23%.

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So the original base bill was 20

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and then it went up to 2123.

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We were all very
pleasantly surprised to see

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that usually those, those types
of tax breaks don't go up.

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But that did give them
some more negotiation room

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as it went through the Senate.

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So the Senate takes it
back to that 20%, which is

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what is the current law,

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but it also expands some of the phases,

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allowing some higher income taxpayers

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to benefit from it, which is a plus.

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And it also includes a new $400
minimum deduction for those

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with at least a thousand dollars.

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So that's another plus.

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So you're just basically making sure

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that more people can enter into
that pipeline of being able

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to use this tax deduction.

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- So two steps forward,

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one step back need a half a
step. Isn't that a poll ab song?

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- I could sing every word
right now if you asked me to

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because opposites attract.

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- That's right. Well and also

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- Any fiction, just a natural fact.

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- Well I'll just pause and
let you finish. Please don't.

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So well that's good. You
know, two steps forward,

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one step back is still a step forward.

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Right, exactly. So we're, we're good

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- On, and it's what the
original baseline bill

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and what our original
request was to keep it at 20%

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and that's what is
maintained in the center.

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- If you're Paul Abdul, does
that make me the cartoon cat?

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- Oh it absolutely does.
That was a great video. I

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- Know.

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Any, any eighties video

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with a cartoon in it like Roger Rabbit,

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why don't they bring that back?

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- There's still time
- I know. Still have.

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Alright, let's go to the next one.

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Any differences in how the
mortgage interest is treated?

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'cause I know in the house
they, that this was one

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of our top fives, we,

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we preserved mortgage interest deduction.

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- Yes. So the deduction is
the same as in the House bill,

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but the Senate adds something important

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and it counts mortgage
insurance premium as interest.

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So that's a, a tweak, but a helpful tweak

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because that means more
that can be deducted

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and it makes that $750,000
mortgage interest deduction

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permanent just like the
house bill does too.

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- Oh, score for first time buyers.

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- Right. So, and not having to go back

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and forth every few years

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and find out if this number could change.

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- Well this bill seems
as a good opportunity

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for opportunity zone reform.

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- The opportunity zone. See
what I did, there are plenty.

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And so yes, the Senate bill
also mirrors the House bill.

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In many ways we see a plus
in the Senate version,

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it mirrors the house bill

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but also strengthens opportunity zones

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by making these tax incentives permanent.

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So opportunity zones were a key component

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of the 2017 Tax Cut and Jobs Act.

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There are many folks involved
in these negotiations

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who were the original creators

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of opportunity zones
like Senator Tim Scott,

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also HUD secretary,

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Scott Turner was working on
opportunity zones at the White

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House in the first Trump administration.

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So there's a lot of interest
there in making sure

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that these programs are continuing

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and the Senate pluses it up a little bit.

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- Awesome. Well let's talk
about affordable housing now

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and the, the low income housing credit

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because that was a big, big
win for us in the House version

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- E, especially as we're
looking for new construction

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and building more housing

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that can help low income individuals

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and just create more inventory

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important to keep this in there.

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So this is a little different
from the House version,

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but it's also a bit more straightforward

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and like we said with the other
things, it's permanent. So

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- Yes, and we will get into
the permanent versus temporary

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in our next episode

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because that is a huge
difference between this bill

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and the one that passed in 2017.

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- Absolutely, yeah, the,
the 20 17 1 was designed

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to end at some point

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and knowing that this is the end

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to date making these permanent

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definitely help for investments.

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- Right. So how does this
senate version compare when it

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comes to the energy tax credits?

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Because the house bill
was gonna end them at,

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at the close of 2025.

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- Yeah, so that was one area
where there's a difference.

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So the house bill was going to put an end

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to energy tax credits for buildings.

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The Senate does extend
them until 12 months

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after the bill is enacted.

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So that is a slight plus

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and that gives more time for
folks to see how this is going

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to make an impact on those types

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of energy efficiency policies.

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- Alright, so if we were
gonna have a meeting

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of the Salt Caucus in the
Senate, nobody would show up

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because there isn't one, there's
no Republican in the Senate

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who represents one of the high tax states.

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So all the salt negotiation
happened in the house.

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You had the, the delegation
from California and New Jersey

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and New York, all the Republican
members there fighting

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for some salt relief.

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They got a quadruple, we
were a big supporter of that.

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So, so how is the Senate tackling
the salt issue since there

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really isn't any champions per se on

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that side of the, the Capitol?

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- It does get to a matter
of different constituencies.

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And when you're looking at the house

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and you're seeing that a, a
house member is has, you know,

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hundreds of thousands of constituents

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and a much more defined area

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that you can see high cost areas,

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high tax areas being represented

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by both Republicans and Democrats.

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But when you look at the
Senate, I, I would push back

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and say that there are senators

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who are representing high cost salt states

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and that can be high property taxes.

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So one of the areas that's
not being mentioned as often

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as it should in this debate
is that this isn't just states

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that have high income taxes,
which are typically chalked up

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to California and New York

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or so-called blue states,

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that you can also have high
property taxes in places like

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Texas and Florida.

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We ran some numbers

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and have shared those with
members of the SALT Caucus.

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And you have in particular
like Miami area, Dallas area

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where property taxes are very, very high

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and the median homeowner
is going to be able to hit

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that $10,000 limit pretty easily.

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So what we're looking
for here is to continue

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that $40,000 in the Senate bill,

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but if that is not something

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that's being negotiated
favorably, we have long called

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for ending the marriage penalty insult.

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So if you are joint
filers that you can double

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that $10,000 deduction to 20,000

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and that would also capture a
lot of these high cost areas.

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So the other thing, there's,

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there have been talks about
adding things like a corporate

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salt and other types of pay fors

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and those haven't been moving anywhere.

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There's still plenty of time
for this to be negotiated

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before July 4th,

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but we do think that it'll be
one of the last ticket items

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that's discussed and in
conversations that we have had

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with Senate Republicans who
may not personally support this

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because they are living in low tax areas

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and their constituents
feel like they're unfairly

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subsidizing the high tax
areas by not having as large

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of deductions that they do
understand that this is an issue

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that needs to be addressed.

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If they do nothing on this at all,

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that salt provision expires completely

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and it goes back to you
can deduct 100% so right.

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It will be addressed one way or the other.

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And we do expect that it will
be increased from that 10,000.

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- Great. And, and so it's a
40,000 now it's possible they

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keep that and tweak the
income limit, maybe lower

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that a little bit from 500,000 to 400,000.

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You know, I think they're
working all the knobs

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and and levers there. Levers, levers

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- I always think of like
the the, the boombox

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that I had in 1980s, nineties

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and you're just looking at the equalizer

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and just trying to see
what that perfect sound

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for Paul Abdul is.

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- Exactly. - And you know, I
want a little more base here

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or actually her vocals are amazing,

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so some more trouble too, but
that's what they're doing.

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So where they can shave
off a little bit here

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but then increase there and try to capture

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as many taxpayers in involved as possible.

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- Exactly. I saw her in
concert in Knoxville.

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She waved at me from like
getting on the tour bus. Oh

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- She's amazing.

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- Me and the 10,000 people behind me.

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But it felt like it was me.

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- That's, I mean that's why she's amazing.

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- All right, so we had
something interesting

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that popped up in the
House pass version and,

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and they had these, they're
calling 'em Trump accounts,

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child savings accounts, they're,

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that's how they're trying to brand it. But

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- Baby bonds,
- Baby bonds, I like baby bonds better

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anything with alliteration.

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So it's a thousand dollars
for newborns, is that right?

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- Yes. And it has to be born
after the bill is enacted.

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So if you're born

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after the enacted date,

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a thousand dollars goes into
the account coming from the

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federal government and
then you can contribute up

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to $5,000 a year

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and when it matures, when you
mature allegedly around 18

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to 25, you can use up to half
of that of those funds to pay

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for a down payment on a home.

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And then you can use up
to a hundred percent as

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you get a little bit older. So,

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- And this has been a long time
dream like down payments are

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a big impediment to first time
home buyers like saving up

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that down payment, especially
first generation home buyers

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who might not have inheritance

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or family wealth to help
them over that, that hurdle.

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So I just plugged this into
my magic computer machine.

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So you start with a thousand dollars,

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let's say you added
5,000 a year for 18 years

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with a 6% return rate.

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That's $166,000 when the child turns 18.

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You can pay for college, you
can down payment for a home,

254
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let's just say that you
contribute nothing to it.

255
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Let's just say you the thousand dollars

256
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and you didn't put anything else in

257
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after 18 years calculating ending balance

258
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around $3,000. I mean

259
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- Yeah.

260
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And that's, that's something that is,

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is growing over the years

262
00:10:22,890 --> 00:10:25,440
and just as importantly,
this isn't down payment

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00:10:25,440 --> 00:10:27,930
as assistance where this
is coming from another

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taxpayer funded account.

265
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These are something that is
being earned by the individual

266
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and being contributed

267
00:10:34,050 --> 00:10:35,970
by their family members over those years.

268
00:10:35,970 --> 00:10:39,930
So it doesn't directly compete
with retirement accounts,

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college savings accounts

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and other things that are
designed to fund those priorities

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that we all have in life.

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This one can be used for housing.

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- Cool. Well I didn't mean
to get off on a whole side

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tangent on that, but I think it's kind

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of a a, a neat idea. It's

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- It's a neat idea.

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- It's a head start for
every American child.

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- Exactly.
- Alright, well let's go on

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to our next real estate topic here.

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Any big red flags that you're
worried about in this bill?

281
00:11:03,330 --> 00:11:05,250
- Well, I don't wanna jinx it Patrick.

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We still don't have this
over the finish line,

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but we have often spoken on
this podcast over the last year

284
00:11:11,670 --> 00:11:15,600
on what doesn't make it into
legislation is often just

285
00:11:15,600 --> 00:11:17,400
as big of a victory as what does

286
00:11:17,400 --> 00:11:19,380
or sometimes it's even bigger.

287
00:11:19,380 --> 00:11:21,180
So what the senate bill,

288
00:11:21,180 --> 00:11:25,350
just like the house version
does not include are any changes

289
00:11:25,350 --> 00:11:27,420
to 10 31, like kind exchange,

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- Applause track
- Every realtor member

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00:11:30,960 --> 00:11:33,870
who has been working on
these issues is, I've talked

292
00:11:33,870 --> 00:11:35,220
to realtors all the time who are like,

293
00:11:35,220 --> 00:11:38,700
I do these several times
a year where 10 31 is

294
00:11:38,700 --> 00:11:41,250
how people are able to
move without losing a huge

295
00:11:41,250 --> 00:11:42,390
chunk of their investment.

296
00:11:42,390 --> 00:11:44,670
And that is a, an incredible feature

297
00:11:44,670 --> 00:11:47,790
and something that we have
long fought to keep intact

298
00:11:47,790 --> 00:11:48,870
and that is still there

299
00:11:48,870 --> 00:11:50,610
and it's always mentioned as a pay for,

300
00:11:50,610 --> 00:11:53,140
but it's not going to be in
this bill carried interest,

301
00:11:53,140 --> 00:11:56,080
which is a way for real estate
developers in particular

302
00:11:56,080 --> 00:11:57,340
and private investors and,

303
00:11:57,340 --> 00:11:59,440
and folks to make sure
that they can put capital

304
00:11:59,440 --> 00:12:02,020
and their sweat equity into a project

305
00:12:02,020 --> 00:12:04,540
and not have to worry about
paying taxes on things

306
00:12:04,540 --> 00:12:06,100
that they haven't even
earned an income on yet.

307
00:12:06,100 --> 00:12:09,490
So that was rumored to be
something that would be removed

308
00:12:09,490 --> 00:12:11,590
and this, this go around

309
00:12:11,590 --> 00:12:15,670
and it was not royalties on nonprofits.

310
00:12:15,670 --> 00:12:18,280
So many nonprofits including NAR,

311
00:12:18,280 --> 00:12:20,980
have what's called a royalty
revenue on a nine 90.

312
00:12:20,980 --> 00:12:22,180
And that's an area

313
00:12:22,180 --> 00:12:24,850
where if you have things
like a partnership benefits

314
00:12:24,850 --> 00:12:27,820
or forms or others that
there could be some reporting

315
00:12:27,820 --> 00:12:29,050
but you don't pay taxes on that

316
00:12:29,050 --> 00:12:31,810
because it's an essential part
of that nonprofit business.

317
00:12:31,810 --> 00:12:34,840
There was an, the
original draft legislation

318
00:12:34,840 --> 00:12:36,730
that there had been a
provision that would say

319
00:12:36,730 --> 00:12:39,610
that those would be taxed at
the normal corporate rate.

320
00:12:39,610 --> 00:12:41,650
And so that is something
that we talked about

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00:12:41,650 --> 00:12:44,650
and mentioned that there may
be some other organizations

322
00:12:44,650 --> 00:12:49,000
that are a much larger operators
and that area than we are,

323
00:12:49,000 --> 00:12:51,550
but it's a, it's an important
part of a nonprofit structure

324
00:12:51,550 --> 00:12:54,550
and something that's been
in the law for decades

325
00:12:54,550 --> 00:12:56,530
and shouldn't be impacted right now.

326
00:12:56,530 --> 00:12:58,660
And so that's no longer in the bill.

327
00:12:58,660 --> 00:13:01,870
Things like caps on business salt,

328
00:13:01,870 --> 00:13:03,850
they keep calling it
corporate salt sea salt

329
00:13:03,850 --> 00:13:07,060
because that sounds cute,
but business salt is really

330
00:13:07,060 --> 00:13:11,320
anybody who has, you can
be a sole proprietor LLC,

331
00:13:11,320 --> 00:13:13,360
it's not just corporations.

332
00:13:13,360 --> 00:13:16,000
They were looking at a way
to pay for salts to say okay,

333
00:13:16,000 --> 00:13:17,500
well the individual will be able

334
00:13:17,500 --> 00:13:18,940
to have a higher deduction limit

335
00:13:18,940 --> 00:13:21,370
but then we're going to
create a new deduction limit

336
00:13:21,370 --> 00:13:24,370
for businesses, which would
be very counterproductive,

337
00:13:24,370 --> 00:13:25,600
especially for those mom

338
00:13:25,600 --> 00:13:27,910
and pop housing providers
who are out there

339
00:13:27,910 --> 00:13:28,930
with just a few units

340
00:13:28,930 --> 00:13:30,490
and trying to make ends meet

341
00:13:30,490 --> 00:13:34,360
by paying property taxes on
those investments also increases

342
00:13:34,360 --> 00:13:35,710
to the top tax bracket.

343
00:13:35,710 --> 00:13:37,540
Those that, that did not
make it in there either.

344
00:13:37,540 --> 00:13:42,070
So there are many of those
avoided pitfalls in in this bill

345
00:13:42,070 --> 00:13:44,170
and a lot of positive items

346
00:13:44,170 --> 00:13:46,510
for real estate including
some of our top asks.

347
00:13:46,510 --> 00:13:47,740
- And now a quick update

348
00:13:47,740 --> 00:13:50,800
before we close that, I promised
you the tax reform bill,

349
00:13:50,800 --> 00:13:53,380
as we mentioned at the top
did get signed into law on

350
00:13:53,380 --> 00:13:55,540
July 4th and we are happy to report

351
00:13:55,540 --> 00:13:58,360
that throughout this process we advocated

352
00:13:58,360 --> 00:14:01,000
for five essential top priorities

353
00:14:01,000 --> 00:14:04,330
and those all remained intact
and were signed into law.

354
00:14:04,330 --> 00:14:06,430
Those include a permanent extension

355
00:14:06,430 --> 00:14:09,400
of the lower individual
rates that was critical

356
00:14:09,400 --> 00:14:11,620
for housing affordability.

357
00:14:11,620 --> 00:14:15,820
A permanent and enhanced section
1 99 a deduction for pass

358
00:14:15,820 --> 00:14:17,440
through business income.

359
00:14:17,440 --> 00:14:19,030
A five year quadrupling

360
00:14:19,030 --> 00:14:23,680
of the salt deduction caps
starting this tax year 2025 made

361
00:14:23,680 --> 00:14:25,720
it into law the full protection

362
00:14:25,720 --> 00:14:27,070
for business assault deductions

363
00:14:27,070 --> 00:14:29,350
and 10 31 like kind exchanges

364
00:14:29,350 --> 00:14:30,670
and the permanent extension

365
00:14:30,670 --> 00:14:32,620
of the mortgage interest deduction.

366
00:14:32,620 --> 00:14:35,410
Again, mortgage interest
deduction made permanent.

367
00:14:35,410 --> 00:14:38,260
So those were our five
really important top wins.

368
00:14:38,260 --> 00:14:41,200
But that's not all. The
final bill included a lot

369
00:14:41,200 --> 00:14:43,960
of other provisions that NAR supported

370
00:14:43,960 --> 00:14:45,610
that will strengthen
the real estate economy.

371
00:14:45,610 --> 00:14:47,380
And I'll just tick through
some of those right now.

372
00:14:47,380 --> 00:14:51,830
The low income housing tax
credit, these are key provisions

373
00:14:51,830 --> 00:14:55,610
from the low income Housing
Tax Credit Improvement Act are

374
00:14:55,610 --> 00:14:57,380
included on a permanent basis

375
00:14:57,380 --> 00:14:59,150
to support affordable housing development.

376
00:14:59,150 --> 00:15:00,830
So that was a big win for us.

377
00:15:00,830 --> 00:15:02,390
The child tax credit increased

378
00:15:02,390 --> 00:15:05,540
to $2,200 permanently raising the credit

379
00:15:05,540 --> 00:15:07,340
with inflation indexing.

380
00:15:07,340 --> 00:15:09,080
This provision could ease housing

381
00:15:09,080 --> 00:15:10,730
affordability for families.

382
00:15:10,730 --> 00:15:12,050
The permanent estate tax

383
00:15:12,050 --> 00:15:16,370
and gift tax threshold
was set at $15 million

384
00:15:16,370 --> 00:15:17,990
and inflation adjusted.

385
00:15:17,990 --> 00:15:20,720
So this prevents a sharp
drop in exemption levels

386
00:15:20,720 --> 00:15:24,830
and supports generational wealth
transfer a top NR priority.

387
00:15:24,830 --> 00:15:27,595
There was no increase to
the top individual tax rate.

388
00:15:27,595 --> 00:15:30,650
There was restoration of
key business provisions,

389
00:15:30,650 --> 00:15:31,880
full expensing of research

390
00:15:31,880 --> 00:15:34,130
and development bonus depreciation

391
00:15:34,130 --> 00:15:37,550
and fixes to the interest
expense deduction limit.

392
00:15:37,550 --> 00:15:38,930
There was immediate expensing

393
00:15:38,930 --> 00:15:41,090
for certain industrial structures.

394
00:15:41,090 --> 00:15:43,280
This applies to facilities
used in manufacturing,

395
00:15:43,280 --> 00:15:46,280
refining agriculture,
and related industries.

396
00:15:46,280 --> 00:15:49,040
There was no changes to
carried interest rules.

397
00:15:49,040 --> 00:15:51,830
The bill strengthened the
Opportunity zones, a program

398
00:15:51,830 --> 00:15:53,900
that we have been big supporters of

399
00:15:53,900 --> 00:15:56,810
and it did create that baby bond program

400
00:15:56,810 --> 00:16:00,950
that creates a $1,000 investment
account for each child born

401
00:16:00,950 --> 00:16:02,510
after the bills and enactment

402
00:16:02,510 --> 00:16:05,780
that when maximize can go toward a down

403
00:16:05,780 --> 00:16:06,890
payment on a first home.

404
00:16:06,890 --> 00:16:08,840
So those are some of the top provisions

405
00:16:08,840 --> 00:16:10,130
that made it into law.

406
00:16:10,130 --> 00:16:11,690
And the bill, Shannon

407
00:16:11,690 --> 00:16:14,840
and I will be back next month
where we're gonna be talking

408
00:16:14,840 --> 00:16:18,050
beyond the big beautiful bill
and what's next for advocacy

409
00:16:18,050 --> 00:16:22,280
and also a little bit on the
implementation of the bill

410
00:16:22,280 --> 00:16:25,010
as well and what's coming
next on that front.

411
00:16:25,010 --> 00:16:27,350
And if you want to dive
a little bit deeper into

412
00:16:27,350 --> 00:16:28,460
what made it into law,

413
00:16:28,460 --> 00:16:31,550
our policy team will have a
comprehensive writeup on our

414
00:16:31,550 --> 00:16:34,430
website at NA realtor so
you can check it out there.

415
00:16:34,430 --> 00:16:36,110
So I hope you will join us in August

416
00:16:36,110 --> 00:16:38,840
and we'll see you next
time on the advocacy scoop.

417
00:16:38,840 --> 00:16:40,310
So that's the scoop. Thank you

418
00:16:40,310 --> 00:16:42,350
to everyone listening to this podcast.

419
00:16:42,350 --> 00:16:43,550
Please be sure to subscribe

420
00:16:43,550 --> 00:16:45,890
and share wherever you get your podcast.

421
00:16:45,890 --> 00:16:47,060
And meet us right back here

422
00:16:47,060 --> 00:16:49,010
for more advocacy scoop next time.

423
00:16:50,300 --> 00:16:53,510
- Realtors are members of
the National Association

424
00:16:53,510 --> 00:16:54,343
of Realtors.