Cary, N.C. — North Carolina real estate agents aren't thrilled with the tax reform plan that Gov. Pat McCrory could sign into law as early as the end of the week, but they admit it could have been much worse on their industry.
One provision of the legislation caps the state deduction on mortgage interest and property taxes at a combined $20,000. Earlier tax reform bills eliminated the deductions altogether.
"We're very, very worried that this is just the start of a slippery slope, and the ability of homeowners to take those deductions will go away eventually," said Mark Zimmerman, legislative chairman for the North Carolina Association of Realtors.
Who could be affected by the deduction cap depends on various factors, including home value, mortgage interest rate and property tax rate. Zimmerman said, in general, homeowners who owe $300,000 or less on their mortgage will be able to take their full deductions, while those with more expensive homes and mortgages would start losing out on the tax break.
Association President Patrice Willetts said rising interest rates could push a growing number of homeowners into the cap.
"They're going to get there a lot faster, so they're going to be impacting many more people than they are now," Willetts said.
Gov. Pat McCrory, who negotiated with House and Senate leaders to craft a tax package everyone could agree on, said lower income tax rates will help offset the deduction loss. The proposal replaces the three state tax brackets with a flat 5.8 percent personal income tax next year, and the rate drops to 5.75 percent in 2015 and beyond.
"I think it's a reasonable amount, but you've also got to think of the benefit," McCrory told the realtors group Tuesday. "The benefit is to hopefully free up some money for those people who can now buy homes."
The people who move those homes worry, however, that tax reform could hamper a market still trying to recover from the recession.
"You can buy a little more home because you can deduct this," Zimmerman said. "Once you take that away, you're going to see pressure – downward pressure – on home values."
Still, realtors breathed a sigh of relief over the budget deal after dodging proposals that would had added a series of sales taxes to every home purchase, for everything from appraisals to inspections to the services of real estate agents and closing attorneys.
"We've come a long way," Willetts said.