Expiring Housing Tax Provisions under Debate in Congress


As the debate concerning the extension of the major 2001 and 2003 tax cuts comes to a close (at least for 2010), it is worth taking a look at those housing-related tax rules that have or will expire with the end of 2010. 

The congressional debate is primarily concentrated on larger rules like the top marginal rate (will it increase from 35% to 39.6% for some taxpayers), the capital gains rate (increase from 15% to 20%), the dividends rate (increase from 15% to rates up to the top marginal income tax rate), and estate tax policy. 

The 2010 “patch” for the Alternative Minimum Tax (AMT), which prevents the exemptions amounts for the AMT from falling to 1993 levels (increasing the number of AMT-payers from about 4 million to nearly 30 million), as well as allowing personal tax credits to be claimed against AMT liability, is also a major element of the debate.

With respect to housing policy, the following provisions are candidates for any tax extender package:

  • The section 45L $2,000 new energy efficient home tax credit expired at the end of 2009. Provides a tax credit to builders of certain highly energy efficient homes. Extension will likely be retroactive for 2010 and perhaps include 2011 as well.
  • Extension of the Low-Income Housing Tax Credit exchange program that allows state housing finance agencies to exchange LIHTC credit allocations for 85% of the total for use as subawards for the construction of affordable housing. Extension could also include expanding the exchange program to LIHTCs awarded to disaster zones and perhaps 2011 credit allocations.
  • The section 25C $1,500 tax credit for remodeling an existing home with energy efficient improvements.  The tax credit expires at the end of 2010 and could be extended for 2011.  The credit is subject to a $1,500 limit in total for 2009 and 2010, so a proposed extension will likely include a revised cap for 2011 credit amounts.  Further, without a 2010 AMT patch, the section 25C credit cannot be claimed against AMT liability. This could be an issue for AMT-payers who made upgrades in 2010 absent enactment of the patch.
  • The deduction for private mortgage insurance (PMI), as well as FHA, RHA and VA insurance premiums, expires at the end of 2010. The deduction is subject to an income phase-out, however, thus ruling out its use for anyone with more than $110,000 of adjusted gross income.

There’s significant pressure for the tax extender debate to reach a conclusion in the coming two weeks, if for no other reason than the IRS tax withholding tables need to be ready to go for HR staff in businesses across the country for payrolls made at the beginning of 2011.

And the budget numbers are large. Permanently extending the 10% income tax bracket (it would rise to 15% absent tax relief) is scored at nearly $450 billion over ten years. Keeping the $1,000 child tax credit has a score of about $350 billion over ten years. Retaining the 25%, 28% and 33% brackets has a ten-year score of over $200 billion. Keeping the 15% rate for dividends and capital gains is about $100 billion over ten years. Estate tax relief could come in around $300 billion.  And a two-year patch of the AMT could score as much as $135 billion. 

Regardless of how the debate concludes (such as limiting the tax relief to taxpayers below certain income levels), the numbers involved are large.

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