Washington — The nation's Realtors say Connecticut homeowners may lose as much as 10 percent of the value of the equity in their homes – and maybe more – if Congress approves a GOP overhaul of the federal tax code.

The Senate hopes to vote on a tax bill this week; the House approved its version earlier this month.

The bills differ, but both have provisions that would impact homeowners – and real estate agents say they would slow home construction and discourage people from buying.

The National Association of Realtors opposes both the House and Senate bills and has urged more than 190,000 of its members to write Congress about their concerns.

Commissioning a report on the tax overhaul from PricewaterhouseCoopers, the Realtors estimated home prices will drop nationwide if the tax bills are implemented, especially in states like Connecticut where property prices are higher.

"In addition to increasing taxes on many middle-income homeowners, the report finds that such a proposal could cause home values to fall by an average of more than 10 percent in the near term," the NAR said. "In areas with higher property taxes or state income taxes, the drop could be even greater."

Current tax code allows homeowners to deduct interest on mortgages up to $1 million. The House bill cuts the limit on new mortgages to $500,000. The Senate bill leaves this deduction unchanged.

The House bill also would eliminate the mortgage-interest deduction for second homes.

Both the House and Senate bills would limit the deductibility of interest on home equity loans. Only interest on money borrowed for the construction, repair or improvement of a residence could be deducted. If a loan is used for other purposes, for example for education or to pay medical bills, the interest could not be deducted.

Both bills would end the deductibility of casualty losses, putting a stop to a new tax break that would allow Connecticut residents to deduct most of the cost of repairing crumbling foundations. The Senate bill, however, would allow deductions of casualty losses linked to a presidential emergency declaration.

The Senate bill would end the deductibility of property taxes, which would affect homeowners in high-tax states like Connecticut more than those in other states. The House bill keeps this deduction but caps it at $10,000.

Michael Barbaro, president of the Connecticut Association of Realtors, said the deductibility of property tax is a "huge" incentive to those considering purchasing a home.

He called the tax bills "pretty onerous to our industry."

There are other aspects of the bill the nation's Realtors don't like.

Both bills would require homeowners to own and use a residence for at least five of the eight years before selling it so that the first $500,000 of net profit on that sale is exempt from capital gains taxes. Currently, homeowners can claim this exemption if the home is their primary residence and they had lived in it for two of the past four years.

A big problem for Realtors is that both tax bills eliminate popular individual deductions, including state and local income taxes paid, and nearly double the standard deduction, to $24,000 for married couples and $12,000 for single taxpayers.

That means that even if the mortgage interest deduction survives in the tax overhaul, there will be less of an incentive to make use of that tax break because fewer people will itemize, preferring instead to take advantage of the standard deduction.

In Connecticut, more than 536,000 tax filers claimed the mortgage interest deduction in 2015, but Connecticut Realtors say that number is likely to drop as more people use the standard deduction.

That erodes one of the selling points real estate agents use in urging people to buy a home, and they are concerned that coupled with the loss of the deductibility of property taxes and other provisions, the tax overhaul will hurt sales and lead to a drop in the value of the houses they sell.

"They really take away incentives to home ownership," Barbaro said.

GOP supporters of the bill say it would lower taxes on many Americans and leave them with more money in their pockets to purchase real estate – or anything they want.

While House Speaker Paul Ryan says the House tax bill would result in an additional  $1,182 break, on average, for American taxpayers, analyses of the impact of the tax overhaul differ.

"While most individuals would see a tax decrease under such a proposal, the study estimates that many middle-class homeowners could in fact see a net average tax increase," the NAR said.

It said homeowners with adjusted gross incomes between $50,000 and $200,000 would see their taxes rise by an average of $815.

Barbaro said the nation's Realtors have "invested a lot of time and energy on our political allies, and we hope they come through."

"We're hopeful, but we are not optimistic" that a final tax bill would address the Realtors' concerns, he said.

On Tuesday, the Senate budget committee approved that chamber's version of the tax bill on a party-line vote, clearing the way for a full Senate vote later this week.

Ana Radelat is a reporter for The Connecticut Mirror (www.ctmirror.org). Copyright 2017 © The Connecticut Mirror.

aradelat@ctmirror.org