(Bloomberg) -- Senate tax writers are planning on keeping the mortgage interest deduction limit at $1 million, unlike the House legislation released last week that set a cap of $500,000 for new home sales, according to a person familiar with the emerging Senate bill.
The Senate Finance Committee is still on track to introduce something shortly after its counterpart panel in the House -- the Ways and Means Committee -- finishes work on its version of the legislation later this week, said the person, who asked not to be named because discussions are private. The Senate bill is also likely to include measures to drop the corporate rate to 20 percent and give relief to more pass-through businesses, the person said.
There “isn't any doubt” the Senate bill will have key differences with the House, but a top goal is keeping the House bill's new corporate tax rate of 20 percent, Senate Finance Chairman Orrin Hatch, a Utah Republican, said in an interview.
Hatch wouldn't specify his plans for the mortgage interest deduction. However, when asked whether the panel would keep the $1 million limit intact, he said: “Well, I don't know. It depends on how much feeling there is about moving it back, but I'm not sure.”
The House tax-overhaul bill released Thursday included an unexpected provision that would cap the mortgage-interest deduction on home sales at $500,000 -- a departure from the current cap of $1 million for couples filing jointly. The National Association of Realtors, which has been wary of the tax plan, said that measure “appears to confirm many of our biggest concerns.”
Opening the Door
If the Senate keeps the existing mortgage-interest provision, that may open the door to demands from members of the House who favor that approach. Representative Mark Meadows, the chairman of the conservative Freedom Caucus, said he'd seek to “renegotiate” the House tax plan if the Senate preserves the $1 million cap.
“It certainly makes us have a pause on exactly what we're doing in our bill and if indeed they are keeping the $1 million deduction on mortgage interest and we're not, that's problematic,” said the North Carolina Republican, a former real estate developer.
Senator John Cornyn of Texas, the No. 2 Republican leader, said in an interview Monday the chamber's tax-writing committee wouldn't be using the House bill as a starting point. “We're going to start from scratch, really. We wish them well and I think a lot of what they've tried to do is kind of instructive for us,” Cornyn said.
He said he expects the Finance panel will begin working on the bill next Monday with a vote in the full Senate by the Thanksgiving holiday.
Raising Revenue
Senate tax writers must come up with ways to raise enough revenue, including eliminating deductions, to conform to the congressional budget. Under their budget resolution, Republicans must stay within a total of $1.5 trillion in net deficit increases over a decade for the bill to pass the Senate without Democratic support.
Senators are still debating what to do about the treatment of state and local tax deductions, according to the person. The Senate is less focused than the House on a controversial measure to repeal deductions for state and local income and sales taxes. The biggest beneficiaries of that tax break are in high-tax states dominated by Democrats, such as New York, New Jersey and California.
The differences between the House and Senate will have to be negotiated and resolved before any tax legislation is sent to President Donald Trump for his signature.
--With assistance from Laura Davison
To contact the reporter on this story: Laura Litvan in Washington at llitvan@bloomberg.net.
To contact the editors responsible for this story: Joe Sobczyk at jsobczyk@bloomberg.net, Laurie Asséo
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