Congress Ponders More Tax Relief for Homeowners
You may think that your midsummer rebate check from the Treasury is all the tax relief you’re going to get out of Congress this year.
But if you’re a homeowner, there’s at least a possibility of more. Legislators have been busy devising creative new ways to make the Internal Revenue Code more generous to people who own houses.
Consider these bills now pending on Capitol Hill. The most generous of all--at least to sellers of homes in high-cost markets--would raise the current $250,000 and $500,000 federal limits on tax-free home sale gains to $1 million apiece. Rep. Zoe Lofgren (D-San Jose) is pushing a bill (H.R. 1722) that would let sellers exclude up to $1 million in net profit on a home once every two years.
Unlike the current system, which restricts single-filing home sellers to just half ($250,000) of the tax-free exclusion limit for married joint-filers ($500,000), Lofgren’s bill would treat all taxpayers the same.
Although $1 million in capital gains on a home sale may sound exceptionally high, in Lofgren’s Silicon Valley district, gains in excess of the $500,000 limit are not uncommon. That’s in part because the underlying level of home prices is high--with median costs of $500,000-plus--and average home prices have more than doubled during the last 60 months alone. Entire swaths of expensive California real estate, particularly in and near San Francisco, have seen double-digit appreciation.
Other parts of the country need tax relief, too, argues Lofgren. Massachusetts, New York, Connecticut, New Jersey and metropolitan Washington, D.C., all have seen huge appreciation in markets where prices far exceed the national median. Her remedy: Give sellers in high-cost areas a break by moving the national limits up to a flat $1 million in tax-free profit, with no discrimination against single or married sellers.
A more gradual approach to high home-sale capital gains is taken in a bill co-sponsored by a bipartisan group of Senate heavyweights. The Capital Gains Relief and Simplification Act of 2001 (S. 818) would index the current $250,000/$500,000 limits to the annual rate of inflation in the national economy, moving up the maximum exclusions over time.
Written by Sen. Orrin G. Hatch (R-Utah), second-ranking minority member on the tax-writing Senate Finance Committee, the bill carries a high-octane list of co-sponsors, including Joe Lieberman (D-Conn.) and Finance committee members Robert Torricelli (D-N.J.), Jon Kyl (R-Ariz.) and Frank Murkowski (R-Alaska).
Under the bill, for example, if the consumer price index increased by 4% a year for the next five years, single-filing home sellers could exclude $304,163 instead of $250,000 of gain tax-free at the end of that period, and married joint-filers could exclude $608,326 instead of $500,000.
The bill also would eliminate a major tax trap currently in the law for American home sellers in the armed forces and foreign service and for corporate employees transferred overseas. Under the current tax code, home sellers can qualify for the maximum tax-free gain exclusions only when they own and use their property as their principal residence for at least two of the five years preceding the sale.
That creates problems for workers transferred overseas. They may return to their home and want or need to sell. But if they’ve been away for more than three years, or rented out the property for an extended period, they may not be able to qualify under the two-out-of-five-year rule. When they sell, they could face major capital gains taxes.
The bill now before the Finance committee would remedy that problem by “suspending” the current ownership and use test during the period of the transferees’ absence abroad for job-related reasons. It also would remedy another problem in the code: capital losses.
The current maximum write-off for capital losses against ordinary income is $3,000 a year, when the taxpayer has no capital gains to offset the loss.
The new bill would raise the limit to $10,000. It also would restore the tax rate on capital gains to 50% of a taxpayers’ ordinary income tax bracket, replacing the current 20%.
Other key bills in the home real estate hopper would provide tax credits for a variety of energy-conserving home improvements, such as solar panels, photovoltaic equipment, windows, insulation and the like.
Some of the credits would go as high as $2,000.
The outlook for this summer’s bumper crop of home real estate tax goodies? Uncertain at best. But even if they get chewed up in the political meat grinder this session, they’ll be back next year.
Never bet against the political clout of homeowners on Capitol Hill. Virtually everybody in Congress is a member of that giant interest group.
*
Distributed by Washington Post Writers Group.
