The $792-billion tax cut bill Congress passed before heading home for summer recess last week is:
(a) Guaranteed a veto by President Bill Clinton once it hits his desk in September.
(b) Loaded with goodies for just about everybody except homeowners with special tax problems.
(c) Likely to be followed by a second attempt at a 1999 tax cut bill that could be more helpful.
(d) All of the above.
The answer is (d), All of the above. The bill that passed the Senate by just one vote did manage to include a handful of items designed to solve homeowner difficulties with the federal tax code _ especially those of workers sent overseas by private or government agency employers.
But on the whole, the bill is the legislative equivalent of the East Coast drought: slim pickin's. Here is a quick overview of what did and did not get into the final package. Start with what did:
Reform of home-sale rules for military, Foreign Service, and private employees transferred overseas for extended periods. Under the current tax code, home-owning families sent abroad often run afoul of the time calculation requirements for capital gains savings. Those rules allow taxpayers who have owned and occupied their principal residence for two of the past five years to exclude up to $500,000 (married, joint-filing couple) or up to $250,000 (single filers) of their profits from taxation after a sale.
That rule has proved troublesome for armed forces and other government and private personnel working overseas because they have not been in residence for the required minimum two years.
The bill that Congress just passed would eliminate the problem by "suspending" the time of their overseas assignment from the five-year calculation. To illustrate: If you had owned your home for many years and then got transferred to Europe for four years, current rules would credit you with occupying your house for just one of the past five years. The new bill would erase the four years abroad from the time clock, allowing you to reach back to come up with the necessary time to meet the two-out-of-five-year occupancy and ownership standard.
New tax incentives for restoring historic homes. Buyers of older townhouses, detached homes, condominiums and cooperatives in historic neighborhoods in small towns and cities could qualify for modest tax relief under Congress' bill. The legislation allows such purchasers to deduct 50 percent of the expenses incurred in renovating their homes, up to a maximum deduction of $50,000. The fine print of the bill includes language sharply limiting the attraction of the deduction, however, including "recapture" of all or part of the taxes avoided if the property is sold within five years.
By contrast, bills backed by bipartisan majorities in the House and Senate _ but rejected for the final bill _ would have created a generous new preservation incentive program, worth up to a $40,000 tax credit per house renovation, to stimulate mass renovations of deteriorating homes located in hundreds of urban and rural historic districts nationwide.
Now for what never made it into the 1999 tax bill:
Relief for thousands of homeowners who sell homes for a loss because of market conditions, illness or loss of job. The current tax code hits those hapless sellers with a double-whammy: Not only are they prohibited from claiming a capital loss for tax purposes, as they could if they sold stocks or bonds for a loss, but if they persuaded their lender to cancel any balance remaining on the mortgage after the sale proceeds are paid, the federal tax code treats that cancellation of debt as "income" to the sellers. They are expected to pay regular federal income taxes on all debt the mortgage lender forgives.
Bipartisan bills in both the House and Senate _ ignored in the final bill _ would have provided relief to shellshocked sellers, exempting from taxation whatever mortgage amount their lender didn't collect, provided the sale proceeds were insufficient to pay off the full loan balance.
Relief for "surviving spouses" who sell the family home more than a year after the death of a spouse. Under current law, according to the American Association of Retired Persons, many older sellers miss out on their full potential capital gains exclusion because they sell as "singles" _ widows or widowers _ years after a spouse's death, rather than as a married joint-filer during the tax year of the spouse's death. For sellers in high-cost, high-appreciation areas such as California, New England and the mid-Atlantic, the difference between a single person's exclusion (up to $250,000) and a married joint-filer's (up to $500,000) can be critically important.
The upshot for reforms like these? Hope for better treatment in a post-veto second 1999 tax cut bill. But don't hold your breath.
_ Washington Post Writers Group