Tax Reform Ball Now in Senate’s Court

With tax reform revision legislation having won enough votes to get out the House of Representatives, the future of these changes in the nation’s taxing formula will be considered in the Senate, where Finance Committee Chairman Robert Packwood (R-Ore.) has promised that there will be a vote before July 31.

Meantime, some heated debates and a few changes are expected to be made in the Senate.

For instance, dozens of House Republicans voted for the tax bill only after being assured by President Reagan that he would push the Senate (where Republicans have a slim majority) for certain provisions to make a presidential signature possible as well as probable. One provision is a $2,000 personal exemption for low- and middle-income taxpayers. Other changes may be in capital formation incentives, a clarification of effective dates and a cap of 35% on the individual tax rate.

Legislative counsel Burton C. Wood of the Mortgage Bankers Assn. has been following the progress of the tax legislation and has provided this list of comparables between present tax laws and the House bill:

--Individual tax rates. Now there are 14 tax brackets from 11% to 50%, contrasted to proposed brackets of 15%, 25% and 38%. Exemptions would be raised to $1,500 for itemizers and to $2,000 for non-itemizers, with the standard deduction going up to $2,950 for single persons and to $4,800 for joint filers.

--Mortgage interest. Now there is unlimited deduction. The House bill would provide unlimited deductions for only two residences (one prime and one vacation).

--Real property taxes. No change--will remain fully deductible. At-risk limitation on losses. Real estate transactions are exempted under current law, but under the revised law only those real estate transactions financed by a third party would be exempted from tax consideration.

--Rehabilitation tax credits. Historic buildings now get a 25% tax credit, but this would be trimmed to 20% under the House-passed bill. Also, there would be changes on older buildings, with those built before 1935 being eligible for only a 10% credit. And the basis adjustment for half of the credit would be increased to full basis adjustment for the entire credit.

--Also, there would be some changes in considering tax-exempt bonds for multifamily, low-income housing and tax-exempt mortgage revenue bonds. However, five-year amortization for low-income housing rehab expenditures would remain unchanged.

--Depreciation would be changed generally from 19-years to straight line over a 30-year period, with no recapture at time of sale.

--Also on the negative side for taxpayers, capital gain rates would go from a current cap of 20% to 22%, and minimum taxes on corporations and individuals would increase to a 25% rate.

Elsewhere on the current national housing scene:

The Federal Housing Administration insuring authority has been extended by congressional action to March.

A proposal by the Reagan Administration to sell FHA’s functions to a private investor was withdrawn in what MBA described as “in the wake of adverse reaction from congressional leaders with real estate industry groups.” MBA added that the “proposal to sell FHA flies in the face of prudent fiscal policy and at the same time it turns its back on a long-standing government commitment to homeownership.”

Drafters of the fiscal 1987 budget are still trying to increase FHA user fees as well as those for VA, Ginnie Mae, Fannie Mae and Freddie Mac.

The Senate has voted to change and streamline management of the VA home loan guaranty program and also to increase the maximum loan guaranty amount to $33,500 from $27,500--the first increase in five years. However, no similar bill has been introduced in the House.