Congress Leery of Home Tax Changes

Celebrated Soviet citizen Yelena Bonner commented here recently that the desire and ability to own a home of one’s own is the keystone of what makes America great.

Millions of American immigrants bear testimony to that. But Bonner knows something that we find difficult to appreciate. She’s 63 years old and never has owned a home of her own. Now that she’s seen something of America, she apparently recognizes more fully what has been missing from her life.

Michael Sumichrast, who’s retiring this summer as chief economist of the National Assn. of Home Builders, is an immigrant and naturalized U.S. citizen who long has become passionate when describing the heritage of home ownership in America.

“Home ownership as an attainable goal is one of the truly outstanding dividends of U.S. citizenship,” Sumichrast has said.

And that’s the main reason that our currently tax-reform-minded Congress is not tampering with those sections of the Internal Revenue Code that provide deductions for property taxes and mortgage interest on primary residences and one vacation home.

“Besides being unwilling to risk the justifiable wrath of many millions of U.S. homeowners,” commented Washington realtor Joseph C. Murray, “our national legislators recognize that home ownership is a real cornerstone for the foundation of our American form of democracy.”

Data compiled by the Internal Revenue Service shows that property tax and mortgage interest deductions for housing are mainly taken by middle class residents with annual incomes of less than $50,000--and 21% of them have incomes below $20,000.

No wonder that chief executive Warren Lasko of the Mortgage Bankers Assn. pointed out recently that Congress should never stop understanding that many hard-working Americans annually make crucial economic decisions on how much house to buy--and they usually do it in relation to their situation in regard to the IRS tax code.

“It would be grossly unfair, and possibly financially disastrous, to take away the tax advantages on which they counted,” Lasko said. “Those deductions (and the tax money that they save homeowners) might mean the difference between owning and losing a home. It would be unreasonable for the majority of homeowning Americans to change the rules in midstream.”

But not all the benefits of home ownership are dependent on tax deductions. My father always insisted that the best reason for owning a house was to have a sense of roots, the ability to fix up the house as you go along and to avoid rent increases. His modest income was such that he never benefited from any income tax deductions for property taxes or mortgage interest.

Still another reason for home ownership is the magical combination of residential property appreciation and leverage obtained by using a mortgage. Realtor Earl Farr noted that the average nice house in a good neighborhood now doubles in value in less than 10 years. That means simply that the house bought for $75,000 in 1976 is probably being resold today for at least $150,000--and probably even more in hot residential cities, such as Los Angeles and Washington.

But the leverage is still another plus for the homeowner. That $75,000 house bought in 1976 probably had a mortgage of at least $60,000, and the buyer put only about $20,000 of his own money (including closing costs) into the transaction.

That means that when the house is resold in 1986 for $150,000, the owner has seen his $20,000 stake increase to $70,000--after paying off the $60,000 mortgage and accounting for the original investment of $20,000. Where else can you invest $20,000 and get back $70,000 in 10 years--and also have a nice house in which to live during the interim?

Almost all housing prices are going up now, and mortgage rates are beginning to increase a bit too. But this still is the best time to buy a house for the first time if you can possibly afford it . . . and also for the second, third or umpteenth time. Affordability conditions are better now than they have been anytime in this decade.