Repeal of the interest deduction on home equity loans is one of a laundry list of supposed tax "loopholes" that would be closed if Congress's Joint Committee on Taxation had its way.

The write-off is not only "inconsistent" with the goal of encouraging home ownership, the committee says in a 450-page report, it also is a "significant disincentive" to savings. Furthermore, the panel maintains that the deduction treats non-homeowners unfairly.

The report was prepared in response to a request last year by Senate Finance Committee Chairman Charles Grassley, R-Iowa, and Sen. Max Baucus, D-Mont., the committee's ranking minority member, who asked for recommendations that would cut into revenues lost through the under-reporting or non-reporting on income -- the so-called "tax gap."

The Joint Committee is non-legislative, so it has no power to offer any of its proposals in the form of a bill. But Sen. Grassley said in a statement that "its suggestions for possible ways to plug big leaks in tax compliance are important as we roll up our sleeves to deal with the deficit and address tax reform."

The Iowa legislator said he does not intend to introduce the entire report in the form of legislation. But at least one housing lobbyist is concerned that the real estate-related options to raise revenues could be in play. "It is highly likely that the tax-writing committees will pick and choose from among the recommendations as they seek revenue raisers in the coming year," says Linda Goold of the National Association of Realtors.

Besides repealing the deduction on home equity loans, the tax panel would limit the exclusion for short-term vacation home rentals to $2,000. It also would eliminate the charitable contribution write-off for facade easements on historic properties used as residences, and reduce the charitable deduction for facade easements for non-residential historic properties.

Additionally, it would impose additional standards on organizations attempting to qualify as tax-exempt credit counseling agencies and conform the formulas state housing agencies use for awarding mortgage credit certificates and mortgage revenue bonds.

The report says an additional $400 billion could be raised if all its suggestion are enacted, and more than 5 percent of that -- $22.6 billion, to be exact -- would come from ending the home equity write-off. About $100 million in extra revenue would result by limiting the vacation home deduction.

The report listed "three major arguments" for ending the home equity write-off:

1. Since home equity interest is interest paid on a personal debt, allowing it to be deducted is "inconsistent policy" because personal interest is generally non-deductible, the committee reasoned.

   "Interest on home equity debt ... more closely resembles non-deductible personal interest than interest incurred to purchases a taxpayer's principal or second residence," the report said.

   "Furthermore, it is unlikely that the deduction ... significantly adds to the present-law incentive to encourage home ownership because most decisions to purchase a home are unlikely to be affected by the ability to deduct home equity indebtedness. Also, individuals who currently benefit from the home equity debt rules have already achieved home ownership and are unlikely to stop being home owners because they home equity debt rules are repealed."

2. The rule that allows equity interest to be deducted -- for indebtedness up to the amount that the fair market value of the property exceeds acquisition indebtedness -- is too complex, the report maintained.

3. The rules give unequal treatment for otherwise similar interest costs based on whether the debtor owns a home. Not only is that inequitable to non-owners, the report pointed out, it also unfairly treats owners who have little or no equity, or those who reside in areas with flat or declining prices as opposed to those living in places where prices are appreciating rapidly.

With regard to vacation properties, the report said that a dollar limitation on the exclusion for income earned if the property is used by the taxpayer as a residence and is rented for less than 15 days would be a more accurate threshold test than the current rule. For some residences, it said, such rentals can generate several thousand dollars in revenues that cannot now be taxed.