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Homeowners hold a big chunk of nation's deficit

When you think of federal housing-subsidy programs you probably imagine public-housing units, filled with low-income tenants. But tucked away in the fine print of the Bush administration's fiscal 1991 federal budget is one of America's least-acknowledged real estate facts: The biggest housing programs, and the biggest drains on the federal Treasury, have nothing to do with poor people. They have everything to do with homeownership. So if you're a homeowner, a home buyer, a builder or real estate investor and find yourself grumbling over Uncle Sam's spending priorities, check out the budget. You've got some big pieces of it.

Three of the top 10 federal tax expenditures next year _ worth an aggregate $72-billion in deficit red ink by White House calculations _ will be for homeownership. Fattest of the three programs is the $46.6-billion the Internal Revenue Service (IRS) won't collect from owners of first and second homes to write off their mortgage interest payments against their regular incomes.

Cast in concrete on Capitol Hill and guarded by the National Association of Realtors and the National Association of Home Builders, the home mortgage interest tax-subsidy program is the most durable housing incentive in the budget. Thanks to rising home prices and mortgage amounts, it's also one of the fastest-growing _ up from the upper $30-billion range just two years back.

In second place _ and worth more than $13-billion a year to the federal deficit _ is the so-called "rollover" of capital gains on home resales.

No. 3 on the 1991 budget list are the write-offs homeowners take for local property-tax payments ($12.4-billion). Like the top two, it's growing fast and it's used almost exclusively by middle- and upper-income taxpayers who itemize. It's also untouchable.

In a surprise showing, the fourth-biggest federal housing tax subsidy now goes to rental homeowners. Not to renters, but the people who own the units renters rent: so-called Mom and Pop landlords. Worth $6.4-billion in red ink for 1991, the incentive program is aimed at rental property owners who make $100,000 or less in adjusted gross income per year.

They are allowed to side-step the tough "passive loss" rules that otherwise prohibit write-offs of rental real-estate losses against ordinary income. Rental homeowners who qualify can deduct as much as $25,000 a year in losses on their rental operations.

The remainder of the top 10 federal tax subsidies for housing, in order of magnitude:

The $125,000 exclusion of capital-gains taxation for homeowners 55 or older. This is the "rollover" escape hatch for thousands of seniors per year. Essentially it allows seniors who've accumulated substantial gains over their years of ownership to hang onto 100 percent of them, tax-free, up to the $125,000 limit. Red ink to the budget because the gains go untouched: an estimated $3.25-billion in 1991 alone.

Tax-exempt housing bonds for first-time home buyers. The biggest housing tax subsidy program aimed at middle-income families, it helps provide cut-rate mortgage money through state housing agencies nationwide. Red ink: $1.63-billion.

Accelerated depreciation on rental housing. Although the tenants are lower- and moderate-income, the beneficiaries of the estimated $1.5-billion in tax subsidies this year will be almost exclusively upper-income property owners or partnership investors.

Low-income housing tax credits ($605-million). The credits reduce middle- and upper-income investors' federal tax bills by encouraging them to put money into low-income housing.

Rehabilitation of historic properties _ much of it housing _ and old but non-historic properties: $230-million.

State and local tax-exempt mortgage support for veterans' housing: $220-million.

The upshot? Though it's rarely presented this way in public discussions of housing subsidies, the fact is that homeowners _ and owners of small-scale rental housing _ receive substantial federal budgetary support. The 12 biggest housing tax expenditures, in fact, produce more than $80-billion in annual deficit red ink, according to budget estimates.

To put that into perspective, the U.S. Department of Housing and Urban Development fiscal 1991 budget outlays for all public-housing operating subsidies are expected to be $1.8-billion, and outlays for homeless programs are expected to total $150-million.