Date Requested:February 21, 2005
Time Requested:02:16 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2005R883 Intro HB2556
CBD Subject: Home Mortgage Interest Deduction
FUND(S)
General Revenue Fund
Sources of Revenue
General Fund
Legislation creates:
A New Program

Fiscal Note Summary

Effect this measure will have on costs and revenues of state government.

    The stated purpose of this bill is to permit deed of trust or mortgage interest paid on taxpayers’ personal residence to be used for personal income tax purposes.
    
    According to our interpretation, passage of this bill would reduce General Revenue Fund collections by approximately $47.8 million per year beginning in Fiscal Year 2007. According to our interpretation of this proposal, this modification would be available to both those who claim itemized deductions for federal income tax purposes as well as non-itemizers. If the provisions of this bill were applied to just itemizers, then its cost would be roughly $23.2 million per year. Although this bill contains language to limit the deduction to $4,000 per year, there is no provision to prohibit the carryover of home mortgage interest in excess of $4,000 to another tax year. This bill would become effective for the 2006 tax year.
    
    If there is a desire to audit some taxpayers who claim this modification, then additional administrative costs for the Tax Department would be roughly $250,000 per year. Otherwise, passage of this bill would result in no additional administrative costs for the Tax Department.

Fiscal Note Detail
Over-all effect
Effect of Proposal Fiscal Year
2005
Increase/Decrease
(use"-")
2006
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 0 250,000
Personal Services 0 0 230,000
Current Expenses 0 0 20,000
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 0 -47,800,000
3. Explanation of above estimates (including long-range effect):
    This bill provides for a home mortgage interest modification at a cost of roughly $47.8 million per year. Although the home mortgage interest modification is subject to a maximum of $4,000 per year, there is no provision to prohibit the carryover home mortgage interest in excess of $4,000 to another tax year. This program would begin in 2006 and most revenue loss in the first year would occur during the Tax Year 2006 filing season in January to April of 2007. The mortgage interest modification appears to be available to both itemizers (i.e., those who claim itemized deductions on the federal return) and non-itemizers. Federal-State tax match data for 2002 indicate a federal deduction of $696 million for roughly 107,000 itemizers. This database represents roughly 97.5 percent of the total returns filed in 2002. Therefore, the total value of the federal deduction for Tax Year 2002 is estimated to be nearly $713 million. Based upon available mortgage loan data, a little over half of all mortgage interest is deducted on the federal tax return. Note that less than 20 percent of West Virginia taxpayers itemize deductions on their federal tax return. A mortgage interest deduction for all mortgage interest of all taxpayers increases the cost of such a modification by more than double the $23.2 million cost estimate for itemizers.
    
    The Tax Department would incur additional administrative costs due to passage of this bill only if this new modification becomes subject to audit. If all mortgage interest modifications are accepted as filed, then there would be no additional administrative costs to the Department.


Memorandum
Person submitting Fiscal Note:
Mark Muchow
Email Address:
kpetry@tax.state.wv.us
    The stated purpose of this bill is to permit deed of trust or mortgage interest paid on taxpayers’ personal residence to be used for personal income tax purposes.
    
    Although this bill contains language to limit the deduction to $4,000 per year, there is no provision to prohibit the carryover of home mortgage interest in excess of $4,000 to another tax year.