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UPDATE: Federal Tax Reform Proposals Impact Bonds, Property Tax Deduction

The federal tax reform proposals that are currently advancing in Congress include provisions of interest to counties. Specifically, both the House and Senate proposals affect certain bonds utilized by local governments and impact the state and local tax (SALT) deduction on federal income taxes.

The House version of the legislation, which passed the chamber on Nov. 16, eliminates the tax-exempt status of advance refunding bonds and private activity bonds. Advance refunding bonds allow local governments to take advantage of lower interest rates by refinancing to save taxpayers money, while private activity bonds help finance certain infrastructure in local communities.

The current tax-exempt status of these bonds allows local governments to qualify for lower interest rates when the bonds are issued. Eliminating the tax exemption for investors who purchase them could increase costs to local governments and affect infrastructure development.

The Senate version that passed the chamber on Dec. 2 retains the tax exemption on private activity bonds, but eliminates the tax-exempt status of advance refunding bonds.

Both the House and Senate versions of the bill also modify the current SALT deduction, which allows itemizers to deduct state and local property and sales taxes. Both versions cap the deduction for property taxes at $10,000 and eliminate it for sales taxes. An earlier Senate version of the bill repealed the deduction entirely; however, it was amended on the Senate floor to match the House version.

Congressional leadership has set forth an aggressive timeline for passage of a final tax reform bill – aiming to pass a bill before Christmas. However, it remains unclear when a final bill might pass. Both chambers recently appointed a conference committee, which is tasked with reconciling the differences between the House and Senate versions. Texas members of the conference committee include Sen. John Cornyn, Rep. Kevin Brady (R-The Woodlands) and Rep. Lloyd Doggett (D-Austin).

The National Association of Counties (NACo) has additional information about the House and Senate tax plans and their impact on counties on its website.

County officials with concerns about the proposed tax plans may want to contact members of their congressional delegation.