HB 3349, first introduced on March 4, 2019, would disallow the mortgage interest deduction for all second residences and would phase out the allowable mortgage interest deduction for principal residences of homeowners based on income. Households earning less than $200,000 federal adjusted gross income (AGI) will still be able to claim the entire mortgage interest deduction on a principal residence, while households earning in excess of $250,000 AGI will lose the mortgage interest deduction completely. However, if taxpayers earn an AGI per household in excess of $200,000, but less than $250,000, the taxpayer can still claim a reduced portion of the mortgage interest deduction for a principal residence. For example, if a household earns $225,000 per year, the taxpayer can still claim 50% of what they would have otherwise received.
A recent amendment to HB 3349 provides exceptions to the mortgage interest deduction limitations that would allow homeowners under the income threshold to receive the mortgage interest deduction on a second home when they are trying to sell the first one or when the qualified residence that is not the taxpayer’s current principal residence was the taxpayer’s principal residence during the tax year or during the period three months prior to the start of the tax year.
Testimony from the April 15, 2019, public hearing suggested that 96.1% of households earn less than the threshold $200,000 AGI, so the bill would affect less than 4% of Oregonians. It was further estimated that the 2.4% of Oregonians who make over the $250,000 threshold would lose the mortgage interest deduction completely. In numbers of taxpayers, HB 3349 would eliminate or limit the mortgage interest deduction for about 70,000 taxpayers per year.
Proponents of HB 3349 are hoping this bill will help solve the housing crises in Oregon. Revenue saved from HB 3349 would be directed to two housing-related programs promoting affordable homeownership and preventing homelessness. An estimated $150 Million per biennium would be directed toward funding these programs beginning on or after July 1, 2020.
Opponents of HB 3349 point out that not all people who own a second home are millionaires. Many are hardworking middle-class taxpayers who planned conservatively with their finances to enable themselves to purchase now, before home values rise even more, the homes to which they someday intend to retire. In making such plans, these taxpayers took into account the historically reliable mortgage interest deduction that will no longer be available to them as a result of HB 3349. Additionally, the Oregon Association of Realtors has expressed concern that eliminating the mortgage interest deduction will disincentivize current homeowners from upgrading to more expensive houses, which will result in fewer openings of existing housing stock to Oregonians with lower incomes.
HB 3349, as adopted on March 25, 2019, would apply to tax years beginning on or after January 1, 2019. We will continue to follow HB 3349 and provide updates as it makes its way through the legislative process.
Peggy Richard is an associate in the Litigation and Creditors’ Rights & Bankruptcy practice groups and the Financial Services Industry Group. The information in this article is not intended to provide legal advice. For professional consultation, please contact Peggy Richard at Saalfeld Griggs PC. 503.399.1070. [email protected] © 2019 Saalfeld Griggs PC