With the House and Senate back on Capitol Hill for the lame-duck session, preliminary negotiations aimed at keeping the country from careening off the “fiscal cliff” began in earnest this past week.
The macro issues – how to reduce federal spending and how to raise federal revenue – are getting the bulk of the attention. But buried away in the discussions are bread-and-butter questions that could affect millions of homeowners and buyers:
• Will the biggest housing-related tax benefits – for mortgage interest, property taxes and home-sale capital gains exclusions – be on the chopping block in the coming six weeks? Or will these popular, multibillion-dollar annual supports for homeownership be deferred for the big game – the “grand bargain” negotiations involving a wholesale transformation of the tax code in 2013?
• Could Congress fail to extend the Mortgage Forgiveness Debt Relief Act before its expiration Dec. 31, potentially exposing large numbers of owners who receive cancellation of unpaid principal balances on their loans to punitive income taxes on the amounts forgiven?
• Will smaller-scale deductions for mortgage-insurance premiums, energy-conserving home improvements and tax credits for builders who construct energy-efficient new houses be renewed? Or could they become poker chips that “pay” for other concessions to real estate interests?
Though strategies and timing could change in the House or Senate, the betting among lobbyists and other analysts is that it’s unlikely that a still-fractious Congress will be able to pull off a major rewrite of the tax code during the lame-duck session. As a result, the big-ticket housing preferences such as the mortgage-interest deduction – a nearly $100-billion-a-year revenue drain for the Treasury – would not be an action item in the coming several weeks, although agreements in principle could be forged to limit them in some way, with details to be worked out in 2013.
But cutting back on housing preferences will be a bruising fight on Capitol Hill, where powerful groups such as the National Association of Realtors and the National Association of Home Builders view them in almost existential terms. Plus any changes to the write-offs – even in a grand reform where every special interest gets dinged – would need to be phased in over an extended period of years, given the important role that housing plays in the economy.