LC 1386 2017 Regular Session 12/9/16 (CMT/ps) DRAFT SUMMARY Disallows, for purposes of personal income taxation, mortgage interest deduction for residence other than taxpayer’s principal residence. Disallows deduction for interest for principal residence based upon income thresholds. Limits deduction for taxpayers below income thresholds. Transfers amount equal to estimated increase in revenue attributable to restrictions on deduction of mortgage interest to accounts in Oregon Housing Fund. Applies to tax years beginning on or after January 1, 2017. Takes effect on 91st day following adjournment sine die. 1 A BILL FOR AN ACT 2 Relating to tax treatment of mortgage interest; creating new provisions; 3 4 amending ORS 316.695; and prescribing an effective date. Be It Enacted by the People of the State of Oregon: 5 SECTION 1. ORS 316.695 is amended to read: 6 316.695. (1) In addition to the modifications to federal taxable income 7 contained in this chapter, there shall be added to or subtracted from federal 8 taxable income: 9 (a) If, in computing federal income tax for a tax year, the taxpayer de- 10 ducted itemized deductions, as defined in section 63(d) of the Internal Reve- 11 nue Code, the taxpayer shall add the amount of itemized deductions deducted 12 (the itemized deductions less an amount, if any, by which the itemized de- 13 ductions are reduced under section 68 of the Internal Revenue Code). 14 (b) If, in computing federal income tax for a tax year, the taxpayer de- 15 ducted the standard deduction, as defined in section 63(c) of the Internal 16 Revenue Code, the taxpayer shall add the amount of the standard deduction 17 deducted. NOTE: Matter in boldfaced type in an amended section is new; matter [italic and bracketed] is existing law to be omitted. New sections are in boldfaced type. LC 1386 12/9/16 1 (c)(A) From federal taxable income there shall be subtracted the larger 2 of (i) the taxpayer’s itemized deductions or (ii) a standard deduction. Except 3 as provided in subsection (8) of this section, for purposes of this subpara- 4 graph, “standard deduction” means the sum of the basic standard deduction 5 and the additional standard deduction. (B) For purposes of subparagraph (A) of this paragraph, the basic stand- 6 7 ard deduction is: 8 (i) $3,280, in the case of joint return filers or a surviving spouse; 9 (ii) $1,640, in the case of an individual who is not a married individual 10 and is not a surviving spouse; (iii) $1,640, in the case of a married individual who files a separate return; 11 12 or 13 (iv) $2,640, in the case of a head of household. 14 (C)(i) For purposes of subparagraph (A) of this paragraph for tax years 15 beginning on or after January 1, 2003, the Department of Revenue shall an- 16 nually recompute the basic standard deduction for each category of return 17 filer listed under subparagraph (B) of this paragraph. The basic standard 18 deduction shall be computed by dividing the monthly averaged U.S. City 19 Average Consumer Price Index for the 12 consecutive months ending August 20 31 of the prior calendar year by the average U.S. City Average Consumer 21 Price Index for the second quarter of 2002, then multiplying that quotient 22 by the amount listed under subparagraph (B) of this paragraph for each 23 category of return filer. 24 (ii) If any change in the maximum household income determined under 25 this subparagraph is not a multiple of $5, the increase shall be rounded to 26 the next lower multiple of $5. 27 (iii) As used in this subparagraph, “U.S. City Average Consumer Price 28 Index” means the U.S. City Average Consumer Price Index for All Urban 29 Consumers (All Items) as published by the Bureau of Labor Statistics of the 30 United States Department of Labor. 31 (D) For purposes of subparagraph (A) of this paragraph, the additional [2] LC 1386 12/9/16 1 standard deduction is the sum of each additional amount to which the tax- 2 payer is entitled under subsection (7) of this section. 3 (E) As used in subparagraph (B) of this paragraph, “surviving spouse” and 4 “head of household” have the meanings given those terms in section 2 of the 5 Internal Revenue Code. 6 7 (F) In the case of the following, the standard deduction referred to in subparagraph (A) of this paragraph shall be zero: 8 (i) One of the spouses in a marriage filing a separate return where the 9 other spouse has claimed itemized deductions under subparagraph (A) of this 10 paragraph; 11 (ii) A nonresident alien individual; 12 (iii) An individual making a return for a period of less than 12 months 13 on account of a change in the individual’s annual accounting period; 14 (iv) An estate or trust; 15 (v) A common trust fund; or 16 (vi) A partnership. 17 (d) For the purposes of paragraph (c)(A) of this subsection, the taxpayer’s 18 itemized deductions are the amount of the taxpayer’s itemized deductions as 19 defined in section 63(d) of the Internal Revenue Code (reduced, if applicable, 20 as described under section 68 of the Internal Revenue Code) minus: 21 (A) The deduction for Oregon income tax (reduced, if applicable, by the 22 proportion that the reduction in federal itemized deductions resulting from 23 section 68 of the Internal Revenue Code bears to the amount of federal 24 itemized deductions as defined for purposes of section 68 of the Internal 25 Revenue Code)[.]; 26 (B) Any portion of the deduction for qualified residence interest 27 paid or accrued on indebtedness with respect to a qualified residence 28 other than the taxpayer’s principal residence; and 29 (C)(i) Any portion of the deduction for qualified residence interest 30 paid or accrued on indebtedness with respect to the taxpayer’s princi- 31 pal residence, if a taxpayer has federal adjusted gross income in excess [3] LC 1386 12/9/16 1 of $100,000, or, if reported on a joint return, in excess of $200,000; or 2 (ii) If a taxpayer has federal adjusted gross income not in excess 3 of $100,000, or, if reported on a joint return, not in excess of $200,000, 4 the amount by which qualified residence interest paid or accrued for 5 the taxpayer’s principal residence exceeds $10,000. 6 (2)(a) There shall be subtracted from federal taxable income any portion 7 of the distribution of a pension, profit-sharing, stock bonus or other retire- 8 ment plan, representing that portion of contributions which were taxed by 9 the State of Oregon but not taxed by the federal government under laws in 10 effect for tax years beginning prior to January 1, 1969, or for any subsequent 11 year in which the amount that was contributed to the plan under the Inter- 12 nal Revenue Code was greater than the amount allowed under this chapter. 13 (b) Interest or other earnings on any excess contributions of a pension, 14 profit-sharing, stock bonus or other retirement plan not permitted to be de- 15 ducted under paragraph (a) of this subsection may not be added to federal 16 taxable income in the year earned by the plan and may not be subtracted 17 from federal taxable income in the year received by the taxpayer. 18 (3)(a) Except as provided in subsection (4) of this section, there shall be 19 added to federal taxable income the amount of any federal income taxes in 20 excess of the amount provided in paragraphs (b) to (d) of this subsection, 21 accrued by the taxpayer during the tax year as described in ORS 316.685, less 22 the amount of any refund of federal taxes previously accrued for which a tax 23 benefit was received. 24 (b) The limits applicable to this subsection are: 25 (A) $5,500, if the federal adjusted gross income of the taxpayer for the tax 26 year is less than $125,000, or, if reported on a joint return, less than $250,000. 27 (B) $4,400, if the federal adjusted gross income of the taxpayer for the tax 28 year is $125,000 or more and less than $130,000, or, if reported on a joint 29 return, $250,000 or more and less than $260,000. 30 (C) $3,300, if the federal adjusted gross income of the taxpayer for the tax 31 year is $130,000 or more and less than $135,000, or, if reported on a joint [4] LC 1386 12/9/16 1 return, $260,000 or more and less than $270,000. 2 (D) $2,200, if the federal adjusted gross income of the taxpayer for the tax 3 year is $135,000 or more and less than $140,000, or, if reported on a joint 4 return, $270,000 or more and less than $280,000. 5 (E) $1,100, if the federal adjusted gross income of the taxpayer for the tax 6 year is $140,000 or more and less than $145,000, or, if reported on a joint 7 return, $280,000 or more and less than $290,000. 8 (c) If the federal adjusted gross income of the taxpayer is $145,000 or more 9 for the tax year, or, if reported on a joint return, $290,000 or more, the limit 10 is zero and the taxpayer is not allowed a subtraction for federal income taxes 11 under ORS 316.680 (1) for the tax year. 12 (d) In the case of spouses in a marriage filing separate tax returns, the 13 amount added shall be in the amount of any federal income taxes in excess 14 of 50 percent of the amount provided for individual taxpayers under para- 15 graphs (a) to (c) of this subsection, less the amount of any refund of federal 16 taxes previously accrued for which a tax benefit was received. 17 (e) For purposes of this subsection, the limits applicable to a joint return 18 shall apply to a head of household or a surviving spouse, as defined in sec- 19 tion 2(a) and (b) of the Internal Revenue Code. 20 (f)(A) For a calendar year beginning on or after January 1, 2008, the De- 21 partment of Revenue shall make a cost-of-living adjustment to the federal 22 income tax threshold amounts described in paragraphs (b) and (d) of this 23 subsection. 24 (B) The cost-of-living adjustment for a calendar year is the percentage by 25 which the monthly averaged U.S. City Average Consumer Price Index for the 26 12 consecutive months ending August 31 of the prior calendar year exceeds 27 the monthly averaged index for the period beginning September 1, 2005, and 28 ending August 31, 2006. 29 (C) As used in this paragraph, “U.S. City Average Consumer Price 30 Index” means the U.S. City Average Consumer Price Index for All Urban 31 Consumers (All Items) as published by the Bureau of Labor Statistics of the [5] LC 1386 12/9/16 1 United States Department of Labor. 2 (D) If any adjustment determined under subparagraph (B) of this para- 3 graph is not a multiple of $50, the adjustment shall be rounded to the next 4 lower multiple of $50. 5 6 (E) The adjustment shall apply to all tax years beginning in the calendar year for which the adjustment is made. 7 (4)(a) In addition to the adjustments required by ORS 316.130, a full-year 8 nonresident individual shall add to taxable income a proportion of any ac- 9 crued federal income taxes as computed under ORS 316.685 in excess of the 10 amount provided in subsection (3) of this section in the proportion provided 11 in ORS 316.117. 12 (b) In the case of spouses in a marriage filing separate tax returns, the 13 amount added under this subsection shall be computed in a manner consist- 14 ent with the computation of the amount to be added in the case of spouses 15 in a marriage filing separate returns under subsection (3) of this section. The 16 method of computation shall be determined by the Department of Revenue 17 by rule. 18 (5) Subsections (3)(d) and (4)(b) of this section shall not apply to married 19 individuals living apart as defined in section 7703(b) of the Internal Revenue 20 Code. 21 (6)(a) For tax years beginning on or after January 1, 1981, and prior to 22 January 1, 1983, income or loss taken into account in determining federal 23 taxable income by a shareholder of an S corporation pursuant to sections 24 1373 to 1375 of the Internal Revenue Code shall be adjusted for purposes of 25 determining Oregon taxable income, to the extent that as income or loss of 26 the S corporation, they were required to be adjusted under the provisions 27 of ORS chapter 317. 28 (b) For tax years beginning on or after January 1, 1983, items of income, 29 loss or deduction taken into account in determining federal taxable income 30 by a shareholder of an S corporation pursuant to sections 1366 to 1368 of the 31 Internal Revenue Code shall be adjusted for purposes of determining Oregon [6] LC 1386 12/9/16 1 taxable income, to the extent that as items of income, loss or deduction of 2 the shareholder the items are required to be adjusted under the provisions 3 of this chapter. 4 5 6 7 8 9 10 11 (c) The tax years referred to in paragraphs (a) and (b) of this subsection are those of the S corporation. (d) As used in paragraph (a) of this subsection, an S corporation refers to an electing small business corporation. (7)(a) The taxpayer shall be entitled to an additional amount, as referred to in subsection (1)(c)(A) and (D) of this section, of $1,000: (A) For the taxpayer if the taxpayer has attained age 65 before the close of the taxpayer’s tax year; and 12 (B) For the spouse of the taxpayer if the spouse has attained age 65 before 13 the close of the tax year and an additional exemption is allowable to the 14 taxpayer for such spouse for federal income tax purposes under section 151(b) 15 of the Internal Revenue Code. 16 17 18 19 (b) The taxpayer shall be entitled to an additional amount, as referred to in subsection (1)(c)(A) and (D) of this section, of $1,000: (A) For the taxpayer if the taxpayer is blind at the close of the tax year; and 20 (B) For the spouse of the taxpayer if the spouse is blind as of the close 21 of the tax year and an additional exemption is allowable to the taxpayer for 22 such spouse for federal income tax purposes under section 151(b) of the 23 Internal Revenue Code. For purposes of this subparagraph, if the spouse dies 24 during the tax year, the determination of whether such spouse is blind shall 25 be made immediately prior to death. 26 (c) In the case of an individual who is not married and is not a surviving 27 spouse, paragraphs (a) and (b) of this subsection shall be applied by substi- 28 tuting “$1,200” for “$1,000.” 29 (d) For purposes of this subsection, an individual is blind only if the 30 individual’s central visual acuity does not exceed 20/200 in the better eye 31 with correcting lenses, or if the individual’s visual acuity is greater than [7] LC 1386 12/9/16 1 20/200 but is accompanied by a limitation in the fields of vision such that 2 the widest diameter of the visual field subtends an angle no greater than 20 3 degrees. 4 (8) In the case of an individual with respect to whom a deduction under 5 section 151 of the Internal Revenue Code is allowable for federal income tax 6 purposes to another taxpayer for a tax year beginning in the calendar year 7 in which the individual’s tax year begins, the basic standard deduction (re- 8 ferred to in subsection (1)(c)(B) of this section) applicable to such individual 9 for such individual’s tax year shall equal the lesser of: 10 (a) The amount allowed to the individual under section 63(c)(5) of the 11 Internal Revenue Code for federal income tax purposes for the tax year for 12 which the deduction is being claimed; or 13 (b) The amount determined under subsection (1)(c)(B) of this section. 14 SECTION 2. On or before July 1 of each year, beginning with July 15 1, 2018, the Department of Revenue shall: 16 (1) For tax years beginning on or after January 1 of the preceding 17 year and ending before January 1 of the current year, estimate the 18 increase, if any, in the amount of personal income tax revenue re- 19 ceived by the department that is attributable to the amendments to 20 ORS 316.695 by section 1 of this 2017 Act; and 21 (2) Transfer an amount equal to the estimate required under sub- 22 section (1) of this section to the Oregon Housing Fund created under 23 ORS 458.620, to be credited to the following accounts in the fund: 24 (a) Fifty percent to the Home Ownership Assistance Account; 25 (b) Twenty-five percent to the General Housing Account; and 26 (c) Twenty-five percent to the Emergency Housing Account. 27 SECTION 3. The amendments to ORS 316.695 by section 1 of this 28 2017 Act apply to tax years beginning on or after January 1, 2017. 29 SECTION 4. This 2017 Act takes effect on the 91st day after the date 30 on which the 2017 regular session of the Seventy-ninth Legislative 31 Assembly adjourns sine die. [8] LC 1386 12/9/16