HB 2761 Prevents Hidden Income Tax Increase On Middle Class Homeowners
Preserving Itemized Tax Deductions in Kansas
Under current Kansas law, Kansas income tax filers may only itemized deductions on state tax filings if they itemize on their federal return. Due to the doubling of the federal standard deduction, very few Kansas taxpayers will benefit from the itemized deductions currently provided in Kansas tax law. HB 2761 would provide that starting in tax year 2018 and thereafter, an individual may itemize deductions in Kansas tax filings regardless of whether or not an individual’s federal taxable income allows itemized deductions. The Kansas Association of REALTORS® supports HB 2761 and its efforts to hold harmless Kansas itemizers.
Another Income Tax Increase On The Line
Earlier this session, federal tax reform was estimated to result in $140 million more dollars flowing into the state in income taxes in FY ‘18, with an estimated $90 million due to the majority of Kansans not being able to take advantage of the Kansas itemized deductions – charitable, mortgage interest, property taxes, medical expenses. Therefore, it is important that this legislation passes so Kansas homeowners may retain these favorable tax provisions. Failure to act in response to federal tax reform by the Legislature would amount to a $90 million-dollar income tax increase on Kansas itemizers.
According to the National Association of REALTORS®, by doubling the standard deduction, Congress has greatly reduced the value of the mortgage interest and property tax deductions as tax incentives for homeownership. Congressional estimates indicate that only 5-8% of filers will now be eligible to claim these deductions by itemizing, meaning there will be no tax differential between renting and owning for more than 90% of taxpayers. Significantly impacted will be middle class homeowners who would lose their Kansas deductions simply because they take the standard deduction federally. Kansas itemized deductions serve as meaningful tax relief for hardworking, middle class Kansas homeowners. HB 2761 is necessary legislation to avoid this unintended consequence of federal tax reform and hold Kansas homeowners harmless.
KAR testified in support of this legislation in House Taxation and laid out the case that homeownership, being preferred, deserves continued, preferential tax treatment. Kansas tax policy should encourage homeownership, and these deductions provide meaningful tax relief. Nearly 250,000 Kansans took the Mortgage Interest Deduction (MID) in 2015 and over 300,000 claimed the Property Tax Deduction (PTD). Of the 729,000 owners occupied houses in 2016, 60% had a mortgage. Therefore, it is important that Kansas homeowners continue to be able to claim these deductions regardless of whether they qualify to itemize federally.
Preventing the Hidden Income Tax Increase
HB 2761 must pass in order to preserve these deductions for most Kansas taxpayers that itemize. If the Legislature does nothing, the result is a hidden income tax increase on middle-class homeowners, the year after a significant income tax increase on all Kansans.
