Panel Backs Tax Break for 2nd Homes : House Group Dilutes Reagan Proposal on Real Estate Shelters
A working group within the House Ways and Means Committee recommended Monday that sweeping tax overhaul legislation should allow taxpayers full deductions for the mortgage interest that they pay on both their first and second homes--significantly scaling back President Reagan’s proposal that only interest paid on primary residences be fully deductible.
The panel also recommended other changes in the tax rules governing many popular real estate tax shelters, but it stopped short of going along with Reagan’s recommendation that real estate loss deductions be limited to the amount of his own money an investor has put into a property.
Current law allows investors to deduct losses on the full value of their real estate, including the amount that they have borrowed. Such loans generally do not put the investor at risk because they are secured by the property themselves.
“I was just outgunned by a real estate lobby that knows no limits to its greed,” said California Rep. Pete Stark (D-Oakland), chairman of the working group, who had opposed the more liberal deductions. “The real estate industry creates just far more shelter and abuse than makes any economic sense for the United States.”
Still Some Concerns
“We got a good deal on second homes and on the at-risk rules,” said one official with the National Assn. of Realtors, who asked not to be identified by name. “We’re starting to make a lot of progress in the committee.”
However, he said, the industry still is concerned that the committee will move later to stretch out the write-off for real estate to 28 years from the current 18 years.
The National Assn. of Home Builders estimated that Reagan’s proposed changes in real estate tax law would put 350,000 laborers out of work in its first year and force sharp drops in available and affordable rental housing.
The working group’s alternative will be proposed to the full committee today as it resumes work on drafting its version of Reagan’s tax package. If the committee action follows the pattern that it has set on most issues, it will approve the working group recommendations with only minor modifications.
The committee, three-quarters of the way through the bill, has entered what it hopes will be its last week of work on the tax package, which it aims to bring to a House vote before Christmas.
Still ahead, however, are most of the toughest decisions that it must make in its efforts to come up with an overhaul of the tax system that eliminates many deductions and lowers overall tax rates.
Under Reagan’s original proposal, mortgage interest on principal residences would continue to be fully deductible, but all other interest deductions would be limited to $5,000, plus enough to offset the amount of investment income a taxpayer has earned.
The cap was designed to limit many popular deductions for second homes, expensive automobiles and tax shelters.
Committee Chairman Dan Rostenkowski (D-Ill.) had proposed a different formula for limiting such deductions, but the working group balked at his proposal as well.
Instead, the task force opted to make fully deductible any interest paid on first and second homes or a first home and six weeks of a time-sharing arrangement on a vacation home. Beyond that, people filing joint returns could claim up to $20,000 in interest deductions, plus enough to offset their interest income.
