The long-sought housing bill is likely to become law by next week. President Bush dropped his veto threat this week and the House passed a revised version of the bill by a vote of 272-152. On Friday, the Senate voted 80-13 for cloture on the bill and a final vote is expected on Saturday.
The bill will temporarily allow the Treasury Department to prop up the government-sponsored mortgage funding companies Fannie Mae and Freddie Mac and will also create a federal regulator to oversee them. It will also allow the Federal Housing Authority (FHA), to guarantee refinanced mortgages for homeowners in danger of foreclosure, and will provide communities with additional Community Development Block Grant funds to buy foreclosed or abandoned properties.
The bill includes about $15 billion in tax provisions that are presented as help for homeowners and people in the home-building industry. One provision will create a refundable $7,500 credit for first-time homebuyers that must be paid back in equal installments over the next 15 years. This is the equivalent of an interest-free loan. Eligibility is phased out beginning with taxpayers with incomes of $75,000 (or married couples with incomes of $150,000). It's not clear how helpful this could be, partly because it would not make any money available at the time a down payment is made but would be claimed afterwards.
Another provision will create a deduction for property taxes for non-itemizers, which is capped at $500 per spouse. Most people with a home mortgage do itemize in order to take advantage of the home mortgage interest deduction, so many struggling homeownders may not be helped by this.
The bill also includes provisions to expand the Low Income Housing Tax Credit and to increase the use of bonds by state and local government to address housing needs.
The cost of the tax breaks are offset by revenue-raising provisions. About $9.5 will be raised by requiring banks to report to the IRS credit card transactions for most businesses and $1.4 billion will be raised by limiting the provision of the tax code that currently allows someone who sells a home to exclude the resulting gains from taxable income.
Another 7.6 billion will be raised by delaying the implementation of a tax break for multinational corporations that should never have been enacted in the first place. The soon-to-take-effect law (the new "worldwide interest allocation" rules) is designed to make it easier for multinational corporations to take U.S. tax deductions for interest payments that are really expenses of earning foreign profits and therefore should not be deductible. Implementation of this tax break will be delayed two years, until 2011.