Congress and President Bush may have finished work on 2001's major federal tax bill, but some influential legislators want to do more for housing. A slew of new tax-incentive proposals has popped up on Capitol Hill, and more than a few bills would provide welcome new goodies for home buyers and investors.

Two of the most-noteworthy would create new federal tax credit programs for homeownership. Sen. John B. Breaux (D-Louisiana), a high-ranking member of the Senate Finance committee majority, wants to provide real estate renovators and buyers with a new "historic home credit" worth up to $40,000 per property.

Breaux, a close ally of President Bush on tax matters, would offer federal tax credits to buyers and investors who acquire and restore houses in historic districts around the country. Breaux's bill (S.920) would essentially create a principal residence counterpart to the existing federal tax credit for renovation of historic investment properties, such as hotels, commercial buildings and rental apartments.

The Breaux bill seeks to focus the credit on urban neighborhoods that haven't already been "gentrified" -- fixed up and taken over by yuppies and other high-income professionals. The credit would only be available for rehabilitations in "qualified" historic neighborhoods where the median family income does not exceed two times the statewide median.

Such neighborhoods -- locally- or state-designated districts, especially in downtown areas -- often contain block after block of historically significant old homes. The Breaux credit would be available to buyers who renovated and made the properties their principal residence for five years. Speculators who sold before the five-year deadline would be subject to a recapture penalty.

Another new tax credit program aimed at lower-income home buyers comes from Rep. Lucille Roybal-Allard (D-Calif.). Co-sponsored by House Ways and Means committee ranking minority member Rep. Charles B. Rangel (D-N.Y.), the Home Ownership Tax Cedit Act of 2001 (H.R. 2033) appears to be a Democratic counter-proposal to what's expected later this summer or early fall from the Bush administration.

Treasury department and housing agency officials in the Bush administration are working on the final drafts of a bold new tax credit that would cut as much as 50 percent off the cost of new homes aimed at lower-income purchasers, and produce 100,000 new units a year. The Bush plan would aim the credits at builders and renovators, who would reduce the selling price of units by the value of the credit. Like the successful Low Income Housing Tax Credit (LIHTC) program in the rental housing market, the homeownership credit would generally be syndicated to corporate investors by developers, under a state-by-state allocation formula.

Roybal-Allard's bill, by contrast, would target the credit directly at lower-income home buying families themselves, allowing them to cut their taxes by the amount of the credit for up to the first 10 years following the purchase of a house. The Roybal-Allard bill's "findings" section specifically notes that over 90 percent of all current federal homeownership tax incentives -- mortgage interest write-offs, property tax deductions and capital gains relief -- go to households with over $40,000 in annual incomes. Poorer families reap little or nothing.

The Roybal-Allard concept would distribute an unspecified amount of lower-income homeownership tax credits to state housing finance agencies, who would then allocate them to eligible home buyers.

The outlook for the new credits? If Bush pushes his new homeownership credit concept aggressively this Fall, look for its inclusion -- perhaps with the Democrats' direct-credit feature as an add-on -- in any new tax bill. The Breaux concept is also likely to attract bipartisan support, and could end up in the same omnibus bill.

For more articles by Ken Harney, please press here.

Published: July 2, 2001

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consumer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.