Make us your home page
Instagram

The Nation's Housing: Budgeters give tax preference the eye

Budgeters give tax preference the eye

WASHINGTON — Could the popular $250,000-$500,000 tax-free exclusion of capital gains on sales of homes be a target in any broad-scale, post-election effort to reduce the federal debt and deficit?

Absolutely. Though far more public attention has been given to the presidential candidates' proposals for reining in the mortgage interest deduction, the capital gains exclusion is one of a number of housing "preferences" — subsidies — embedded in the tax code that are on the table in fiscal negotiations beginning later this month on Capitol Hill and likely extending well into 2013.

Nonpartisan, corporate-backed groups such as Fix the Debt, which has nearly 100 CEOs of blue-chip companies including GE, Dow Chemical, AT&T and Microsoft on its list of supporters, define the report of President Obama's deficit reduction commission as the starting "framework" for their forthcoming national debt-reduction campaign. The deficit commission, headed by former Wyoming Republican Sen. Alan Simpson and Erskine Bowles, White House chief of staff for Bill Clinton, called for eliminating or restricting most current tax deductions as part of a plan to reduce the federal deficit by $4 trillion by 2020. The commission also envisioned deep cuts in federal spending and a reduction in corporate and personal income tax rates.

Though the commission carved out one possible exception for housing — converting the mortgage interest deduction to a 15 percent tax credit — tax experts say that under the Simpson-Bowles version of fiscal reform, virtually all real estate write-offs, including the capital gains exclusion, would disappear in a simplified federal tax code. Others on the list: deductions for local and state property taxes; federal tax exemption for interest on state government bond issues used to help provide mortgages for moderate-income home purchasers; and exemption for income taxation of mortgage amounts forgiven by lenders in loan modifications and short sales.

The exclusion of home sale profits, which is projected to save homeowners $86 billion between 2010 and 2014 according to congressional tax estimates, allows taxpayers who have owned and used their principal residences for two years out of the five years preceding a sale to escape capital gains taxation on as much as the first $250,000 (for single filers) and $500,000 (married joint filers) of the profits they make from the transactions.

The ability to pocket home sale gains without taxation is available to all qualified owners once every two years. But it is of special importance to preretirees and retired owners as it allows many of them to owe no federal taxes on their home sale gains — most sales do not generate anywhere near the $250,000 or $500,000 limits — and to factor this tax-free money into planning for their retirement years.

In a so-called "grand bargain" comprehensive reform plan based on the Simpson-Bowles framework, as advocated by Fix the Debt, owners might pay ordinary income taxes at a lower rate but could also lose valuable preferences built into the tax code over a period of decades that were designed to encourage ownership of a home. Whether the net financial benefits of the lower tax brackets would outweigh owners' loss of deductions for mortgage interest and other current advantages — including tax-free treatment of gains on sales of their homes — would depend on the specifics of the grand bargain, phase-in timetables for the tax code changes, and on each owner's personal situation.

The Nation's Housing: Budgeters give tax preference the eye 11/03/12 [Last modified: Saturday, November 3, 2012 4:30am]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Washington Post - Writers Group.
    

Join the discussion: Click to view comments, add yours

Loading...
  1. Potential new laws further curb Floridians' right to government in the Sunshine

    State Roundup

    TALLAHASSEE — From temporarily shielding the identities of murder witnesses to permanently sealing millions of criminal and arrest records, state lawmakers did more this spring than they have in all but one of the past 22 years to chip away at Floridians' constitutional guarantees to access government records and …

    The Legislature passed 17 new exemptions to the Sunshine Law, according to a tally by the First Amendment Foundation.
  2. Data breach exposes 469 Social Security numbers, thousands of concealed weapons holders

    Corporate

    Social Security numbers for up to 469 people and information about thousands of concealed weapons holders were exposed in a data breach at Florida the Department of Agriculture and Consumer Services. The breach, which the agency believes happened about two weeks ago, occurred in an online payments system, spokesperson …

    Commissioner of Agriculture Adam Putnam on Monday that nearly 500 people may have had their Social Security numbers obtained in a data breach in his office.
[Times file photo]

  3. Trigaux: Can Duke Energy Florida's new chief grow a business when customers use less power?

    Energy

    Let's hope Harry Sideris has a bit of Harry Houdini in him.

    Duke Energy Florida president Harry Sideris laid out his prioriities for the power company ranging from improved customer service to the use of more large-scale solar farms to provide electricity. And he acknowledged a critical challenge: People are using less electricity these days. [SCOTT KEELER   |   Times]
  4. Citigroup agrees to pay nearly $100 million fine for Mexican subsidiary

    Banking

    NEW YORK — Citigroup has agreed to pay nearly $100 million to federal authorities to settle claims that a lack of internal controls and negligence in the bank's Mexican subsidiary may have allowed customers to commit money laundering.

    Citigroup has agreed to pay nearly $100 million to federal authorities to settle claims that a lack of internal controls and negligence in the bank's Mexican subsidiary may have allowed customers to commit money laundering. 
[Associated Press file photo]

  5. Goodbye Tampa Bay Express, hello Tampa Bay Next; but toll lanes aren't going anywhere

    Transportation

    TAMPA — Tampa Bay Express is dead.

    The name, that is. But its replacement — Tampa Bay Next — includes several of the same projects once proposed for TBX, such as the express toll lanes on the rebuilt Howard Frankland Bridge.

    The Florida Department of Transportation on Monday announced it was renaming its Tampa Bay Express plan “Tampa Bay Next.” DOT officials said the point of the rebranding is to show there’s no longer a predetermined plan — this time, state officials said they want to involve all stakeholders in drawing up a new plan. Workshops will be hosted to gather community partners and work together on a comprehensive solution for the Tampa Bay region, according to DOT officials.