Outlook for Tax Breaks: Slight and Slighter

With the 104th Congress heading for the homestretch--and into the heat of the campaign season--homeowners, buyers and investors may be interested to know: What’s the status of key real estate, tax and property rights issues pending on Capitol Hill this spring?

Here’s a quick update.

Taxes: Don’t hold your breath, but there’s still a chance that the Republican-controlled Congress and the Clinton administration will agree on a compromise tax package, including some form of capital gains relief covering all forms of real estate sales. A centrist coalition of Senate Republicans and Democrats recently announced support for a maximum capital gains rate of 19.8%--the same as the top rate in the Republican-drafted balanced-budget bill vetoed by President Clinton in December. The current rate is 28%.

In a concession to the administration, the bipartisan plan would hit corporations with a top capital gains rate of 31%--thereby countering the revenue losses caused by the tax cut for individuals. One congressional staff member says the ultimate fate of a capital gains package in 1996 depends on “whether enough (members) up here are really interested in running on a platform of ‘here’s what we accomplished,’ as opposed to ‘here’s what the other party stopped us from doing.’ ”

If the ideological hard-liners in both parties “who would rather postpone all the big issues until after the November elections prevail,” the staff member said, “then forget about any significant tax bill this session. Nothing is going to move in that scenario.”

But if both Clinton and the likely Republican presidential nominee, Senate Majority Leader Bob Dole (R-Kan.), want to be able to point to concrete legislative accomplishments under their leadership, he said, “then I think there’s more of a chance for a bill than the public at large probably assumes.”

Tied into the capital gains bill are two relatively noncontroversial, real estate-related tax provisions that have potential significance for thousands of homeowners across the country. Staff experts here emphasize that neither of them is likely to move on its own, independent of an omnibus, compromise tax bill. They are:

* Tax relief for homeowners who incur losses when they sell their houses. Under the proposal, you could write off capital losses suffered on your home sale against any other capital gains you’ve racked up in the same year. If your home sale losses exceeded your capital gains, you could roll the losses into future tax years to offset subsequent capital gains.

* Ending the so-called “tainted spouse” problem for seniors 55 years or older who want to use the one-time-only $125,000 tax-free exclusion on their home sale capital gains. Seniors who’ve used the exclusion and then remarry after the death of a spouse or a divorce carry a penalty into the new marriage: They prevent their new spouse from taking the $125,000 write-off on his or her own home.

Private property rights protection legislation: One of the top priorities of the so-called Republican revolution, a property rights compensation bill, passed the House last year. No measure has yet passed the Senate. However, Dole reportedly intends to bring his own version of the legislation to the floor for a vote within the coming month. The Dole bill would require compensation to private real estate owners for any diminution of 33% or greater in the market value of their property that was caused by a federal agency’s action.

For example, if the U.S. Army Corps of Engineers declared your vacant lot in the forest a federally protected “wetland” and prohibited construction of your long-awaited vacation cabin on it, you might be able to receive cash compensation for the decline in its market value following the agency determination. Unlike under current law, you’d have the right to demand an expedited administrative remedy to your case, rather than having to file suit for a “taking” in federal court--a long and costly process.

The outlook for a Dole-House Republican compromise bill this session is murky at best. Some Senate Republicans, concerned about public opinion polls critical of the party’s environmental stands, may want to duck the issue altogether.

The Clinton administration, on the other hand, might actually welcome the opportunity to veto a property rights measure this year--adding another notch in its belt against bills inspired by the contract with America.

Distributed by the Washington Post Writers Group.