Though it’s not attracting much attention, the impending arrival of Sen. Ron Wyden, D-Ore., as head of the Senate Finance Committee could be good news for housing and real estate in the weeks ahead.
That’s especially true if you care about mortgage forgiveness relief and other tax code provisions that help homeowners, buyers and sellers.
Things are looking up.
Wyden replaces Max Baucus, D-Mont., who is leaving to serve as the Obama administration’s new ambassador to China. Baucus spent much of the past two years developing comprehensive tax reform legislative proposals with severely negative impacts on real estate, including total elimination of tax-deferred exchanges and lower depreciation write-offs for investors. Now he’s gone.
Baucus’ reform efforts were paralleled in the House by Ways and Means Committee Chairman Dave Camp, R-Mich., who is sitting on a closely guarded tax bill that is potentially so explosive — it would reportedly kill or limit pretty much all popular deductions, such as those for mortgage interest and property taxes — that the House Republican leadership convinced him not to release details late last year.
Camp’s bill would use the revenue that would be generated by eliminating deductions to offset the cost of lowering the top marginal tax brackets for individuals, as well as corporations, to 25 percent.
Meanwhile, Baucus’ and Camp’s insistence on major tax reform had stalled efforts in the House and Senate to extend key expiring provisions in the code.
Max Baucus spent much of the past two years developing comprehensive tax reform legislative proposals with severely negative impacts on real estate. Now he’s gone.”
Among the most important for housing: reauthorization of the mortgage debt forgiveness law that allows financially stressed homeowners to escape federal taxation on the principal balances written off by lenders in connection with short sales, loan modifications and foreclosures; deductions for private and FHA mortgage insurance premiums; and write-offs for certain home energy-saving improvements.
Those three and about 50 other special interest provisions expired Dec. 31, and won’t be available for taxpayers this year unless Congress puts them back into the code retroactive to Jan 1.
But supporters of Baucus and Camp have argued that there shouldn’t be any extensions of special interest tax provisions until Congress takes up a full reform of the tax code. After all, they say, many of the so-called extenders won’t be retained in any major tax reform bill that passes both houses.
Now to the reasons why Wyden taking over as chairman of the Senate Finance Committee is a plus for real estate. No. 1: He is certain to call for a reassessment of Baucus’ reform proposals — a process that could take months.
That will delay consideration of fundamental tax reform in the Senate this year, and would provide fresh pressure to move an extenders bill sooner, not later.
In fact, Wyden has said he intends to take up the extenders issue before proceeding onto major tax reform. That’s welcome news for Wyden’s Democratic colleague from Michigan, Debbie Stabenow, who is sponsoring bipartisan legislation that would reauthorize mortgage debt relief through the end of 2014.
Even better: Wyden has his own ideas about comprehensive tax reform. And based on previous bills he has authored on the subject, they don’t require mangling or killing popular real estate deductions or tax-deferred exchanging a la Baucus.
Wyden’s “Bipartisan Tax Fairness and Simplification Act,” co-sponsored in 2011 with Sen. Dan Coats, R-Ind., would reduce the number of tax brackets for individuals to just three — 15 percent, 25 percent and 35 percent — and eliminate the widely despised Alternative Minimum Tax.
His bill also would seek to simplify the code by encouraging vastly larger numbers of taxpayers to opt for the standard deduction, which would be nearly tripled in size. Though that would encourage some homeowners to stop itemizing, and thus claiming mortgage interest and other real estate write-offs altogether. Wyden estimates that on average, individuals and couples with incomes up to $200,000 “will do as well or better” under his plan than they do today.
Meanwhile in the House, the departure of Baucus increases the pressure on Camp to abandon his plans for comprehensive tax reforms in 2014. With Wyden open to taking up an extenders bill sooner than later, Camp will eventually have to cave and go along.
Bottom line: Baucus heading to China is a great for real estate. Not only are Camp’s and Baucus’ bills essentially knocked off the track, but the popular extenders reauthorization is likely back on track.
Timing is uncertain, but veteran Capitol Hill tax experts say the now-expired housing benefits could be on the president’s desk — retroactive to Jan. 1 — by the summer recess, right before most members of Congress head home to campaign.