The compromise $350 billion tax cut bill signed by President Bush last week has nothing for housing.

Efforts by the National Association of Home Builders to gain a tax credit for first-time buyers never made it out of the starting gate. Neither did a proposal that would have provided tax incentives for home energy features.

Even the most promising initiative, a bi-partisan effort that would have allowed borrowers to write-off their mortgage insurance payments, was dropped form the measure at the last minute.

But at least a proposal that would have ended the 10 percent investment tax credit for the rehabilitation of commercial buildings put into service prior to 1936 was scratched from the bill at the last moment as well.

The final bill also omitted the Administration's controversial plan to eliminate double taxation of dividend income. That's good news to supporters of federal tax credit programs that promote low and modest-income rental housing, who had feared the plan would reduce the amount of equity raised from the sale of tax credits to corporate investors.

Instead, the final bill will treat dividend income -- now taxed at ordinary income tax rates -- the same as capital gains, and reduce the top tax rate for individual taxpayers for both to 15 percent from the present 20 percent (and to 5 percent from the current 10 percent for taxpayers in the lowest tax bracket) through 2007 and retroactive to Jan. 1. The 5 percent rate will be cut to zero, but only for the 2008 tax year.

The mortgage insurance deduction, which would have covered government as well as conventional loans, was lost even though the Joint Committee on Taxation estimated that the cost over 10 years would run a relatively modest $600 million.

As approved by the House, but rejected by a conference committee, the deduction would have been limited to borrowers who earn $100,000 or less. But even at that, an estimated 12 million current borrowers could have taken advantage of the provision, as could some 300,000 new borrowers annually.

The write-off had the support of the nation's private mortgage insurers and practically every other housing group. But not that of Fannie Mae, Freddie Mac, National Association of Realtors and National Association of Home Builders.

The so-called Big Four are members of the Homeownership Alliance formed to combat FM Watch, the mortgage-insurance industry backed organization trying to rein in the two government sponsored enterprises.

But backers say they won't give up. And neither will those who champion tax credit incentives for developers of affordable housing and energy-efficient houses. NAHB in particular favors the ownership tax credit, which is designed to increase the production of affordable for-sale housing in much the same way the low-income housing tax credit has boosted production of affordable apartments. And both NAHB and NAR support write-offs of 20 percent of the cost of remodeling projects that improve energy efficiency, up to a maximum of $2,000.

Meanwhile, the House Financial Services Committee has passed the American Dream Downpayment Act, a measure which would provide $200 million in grant funds for low-income, first-time home buyers.

The panel cleared H.R. 1276 by voice vote after adding two of about a half-dozen amendments. One rider by Rep. Nydia M. Velazquez, D-NY, requires the Department of Housing and Urban Development to ensure as best as possible that recipients of the assistance are not getting in over the heads; the other, by Rep. Michael E. Capuano, D-Mass., allows police, firefighters and teachers who earn up to 115 percent of the median for their areas to qualify.

HUD estimates the $200 million would help some 40,000 families by their first homes. The grants would be distributed through HUD's HOME program. The committee also approved legislation that would allow cities and counties to use Community Development Block Grant funds to build tornado-safe shelters in manufactured housing communities.

Published: May 28, 2003

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