A proposed compromise in the Republican plan to rewrite the federal tax code is “virtually useless” to Long Island homeowners while significantly affecting their ability to take tax deductions, analysts and critics said after the long-awaited proposal was unveiled Thursday.
Under the plan, supported by President Donald Trump, taxpayers who itemize their returns would no longer get to deduct the amount paid in state income taxes from their federal taxes, and would be able to deduct a maximum of $10,000 in property taxes. The proposal would hurt high-income, high-tax states such as New York, California, Connecticut and New Jersey.
The GOP-led plan changed only slightly from original drafts in regard to the local deduction. Instead of eliminating the property-tax deduction altogether, House Republicans advanced a plan to cap it at $10,000. That cap might be enough to cover homeowners in many upstate counties, but many will be left out in Nassau and Suffolk counties, experts said.
“Any elimination or reduction of these deductions will hurt most Long Islanders and the $10,000 cap is virtually useless to Long Islanders who on average pay more in property taxes and state income taxes than any other region in the country,” said Kevin Law, CEO of the Long Island Association, a pro-business group.
The average Nassau deduction claimed for state and local income taxes is $15,213, with another $12,683 in property-tax deductions, according to a recent report by the state comptroller’s office. For Suffolk, it’s $10,934 and $10,387, respectively. Under the new Republican plan, the homeowner wouldn’t be able to deduct income tax payments and would see his/her property-tax deduction capped at $10,000. So many Islanders would lose deductions of $10,000 or more.
A deduction for mortgage interest would be maintained — but limited for newly purchased homes up to $500,000.
The loss of the deductions would result in a roughly $2 billion annual hit to Nassau and Suffolk economies, the LIA projected.
Realtors previously have estimated home values in New York could fall as much as 10 percent under the GOP plan. The New York State Association of Realtors said Thursday it still opposes the plan, despite the compromise on the property-tax cap.
“Our initial read of the House tax proposal released today is that it will harm many New York homeowners,” Duncan MacKenzie, head of the realtors’ group, said in a statement. “It will lessen the value of the property tax deduction and it cuts a host of other key housing-related tax incentives.”
The National Association of Home Builders, often a backer of Republican candidates, is opposed to the tax plan in its current form.
“Eliminating or nullifying the tax incentives for home ownership puts home values and middle class homeowners at risk, and from a cursory examination this legislation appears to do just that,” William E. Brown, president of the National Association of Realtors said in a statement.
Backers of the plan tout that a provision to double the standard deduction that they say would offset the loss of some itemized deductions. But that would be true primarily for residents of lower tax states, especially in the South and Southwest. Another provision to eliminate the so-called Alternative Minimum Tax — which generally affects households making between $200,000 and $1 million annually — might help some Islanders, the LIA said, but wouldn’t offset the loss of deductions.
The impact on state tax and property tax deductions are the main reason seven of the nine Republicans in New York’s congressional delegation have opposed the proposal.
“I am a ‘No’ to this bill in its current form . . . Adding back in the property tax deduction up to $10,000 is progress, but not enough progress,” Rep. Lee Zeldin (R-Shirley) said.
“They call it a tax-cut plan, excuse me . . . In the state of New York, it’s a tax increase plan,” Gov. Andrew M. Cuomo said, calling the loss of state and local deduction “diabolical.”