Possible Perks for Home Buyers, Sellers and Borrowers This Year
Home buyers, sellers and mortgage borrowers could be in line for some significant benefits on Capitol Hill this new year--provided Republicans and Democrats drop the rabid partisanship that characterized 2000 and decide to work together.
Tops on the list of potentially helpful changes in federal law are a handful of tax code reforms, new consumer protection initiatives on credit scores for mortgage borrowers, plus the possibility of lower interest rates for home buyers in high-cost areas who need big mortgages.
Here’s a quick overview, with no odds or handicapping, since it’s still too early to predict whether Capitol Hill politicians seriously plan to pass legislation, or just continue fighting last year’s battles.
* Tax law reforms for housing.
There are several promising ideas that you can count on surfacing early in the new session. One involves indexing the current capital gains exclusion limits for home sale profits to the Consumer Price Index. That would mean that the current $250,000 and $500,000 tax-free ceilings for single-filers and married taxpayers, respectively, would no longer be frozen in time. Instead they would be adjusted once a year to counter the nibbling effects of inflation.
If, for instance, the Consumer Price Index, or CPI, rose by 3% during 2001, an indexed ceiling would take the current $250,000 limit to $257,500, and the $500,000 ceiling to $515,000. If the CPI increased by another 3% the following year, the indexed ceilings would move to $265,225 and $530,450, respectively.
Though the increments may not sound impressive for a single year, over a period of years they could mount up to some serious tax-free savings for large numbers of home sellers. After five years of hypothetical 3% upward CPI revisions, the $250,000 cap for single-filers would stand at $289,819. After 10 years of revisions it would be nearly $336,000. The comparable ceiling for married, joint-filing home sellers would be $671,958--$171,958 over the present limit.
Looking at the issue in a slightly different way, ask yourself: Because inflation is constantly eating away at the effective buying power of my dollars, do I want to lose up to $86,000 in real net wealth as a single-filing homeowner, or up to $172,000 as a married seller, just because Congress didn’t index home sale capital gains when it had a chance in 2001? Bear in mind, of course, that lower inflation rates would produce lower adjusted ceilings, and higher CPI growth even higher limits.
Another tax code issue certain to be on the agenda early: Correction of an anomaly in the law that penalizes people who’ve sold their home for a loss after falling behind on their mortgage payments. Currently the federal tax code treats any portion of a mortgage debt that is written off by a lender as part of a nonforeclosure “workout” agreement with defaulting borrowers as ordinary income to the hapless homeowners. Even though they’ve lost their house and home equity, the IRS demands tax payments for any mortgage principal forgiven by the lender. This could be the year finally to fix this glaring tax code double whammy, say Capitol Hill real estate advocates.
A final tax code change that could prove far-reaching: A new federal tax credit program to spur building and redevelopment of affordable homes for purchase by lower and moderate-income families. The lead sponsor of the plan? None other than President-elect George W. Bush. Although it received scant attention during the campaign, Bush wants to create an ambitious program to build up to 100,000 new and renovated houses during the coming five years, funded by a $1.7-billion tax credit for builders. The campaign never provided much operational detail on the plan, but the tax credits would flow to builders and renovators, covering up to half of the cost of the home. The bulk of the tax benefits would then be passed along to buyers through deeply discounted home prices.
* Consumer issues.
Look for early pushes in the House and Senate to make credit scores available to borrowers who want to see them. Patterned after legislation in California, the federal version would guarantee full access to the currently secret scores that often govern whether home buyers obtain a mortgage and the rate and fees they pay.
Look for a move, too, to improve housing affordability in some high-cost real estate markets around the country. The National Assn. of Realtors currently is studying markets where large numbers of buyers have to pay higher mortgage interest rates because their loans are too big--more than $275,000--for purchase by giant investors Fannie Mae and Freddie Mac. “Nonconforming” jumbo loans too big for the two corporations often carry rates one-half to a full percentage point higher than smaller mortgages. Obvious targets for higher purchase limits: much of California, Massachusetts and elsewhere in New England, plus New York, New Jersey and Washington, D.C.
Stay tuned.
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Distributed by the Washington Post Writers Group.
