When home buyers and owners fix up their houses, the federal government normally doesn’t provide them with any special tax breaks or mortgage money discounts. But under a pair of bipartisan bills pending in the House and Senate, an estimated 1 million owners and buyers across the country could qualify for an attractive new form of renovation tax credit worth up to $40,000 per house. Alternatively, they could use their credit to cut their mortgage interest rate far below prevailing market levels.
this year, provided the Republican leadership and President Clinton cooperate.
congressional leaders, tax-credit proponents want to focus attention on hundreds of thousands of homes in big-city and small-
town neighborhoods that need rehabilitation.
state or federal agencies as having historic importance to the community as a whole.
their owners or by new buyers who move in and remain in the neighborhood.
neighborhoods could recoup up to 20 percent of their renovation expenses in the form of tax credits. A fix-up that cost $50,000
would generate a $10,000 credit; a $100,000 project would generate $20,000.
the highest tax brackets, credits work for people at all income levels. They cut what you owe the government dollar for dollar.
If you can’t use the entire credit in one tax year, it can be rolled over.
would receive federal “mortgage credit certificates” that they could provide to their lender to buy down their interest rate to
below-market levels. The size of the rate reduction would depend on the size of the credit, the size of the loan and how deep a
cut buyers want.
them at a profit to new buyers–with the federal tax credit attached. Builders could not use the tax subsidies for themselves,
however; only resident owners would qualify.
they would face recapture of a prorated share of the tax credit they had pocketed. For example, if you received a $20,000
credit and moved out after 30 months, half the required 60 months, you’d owe the IRS $10,000.
or federal agencies. That means you couldn’t expect a $20,000 tax credit if you bought a home in a neighborhood of Victorian-
era properties and spent $100,000 turning it into a starkly modern-looking house that stuck out like a sore thumb.
cooperatives and mixed-use dwellings around the country would be eligible for the new credit initially, and that the program
would cost the Treasury about $1.2 billion over 10 years. But supporters argue that the economic ripple effects of revitalizing
older, urban neighborhoods stimulated by the credits would more than make up for the loss of revenue.
markets that haven’t blossomed for decades. But can the legislation pass this session?
Republicans are working with the administration to craft an package to combat urban sprawl–and could include the tax credit in it. With so many sponsors in the House and Senate, they’ll be hard-pressed to ignore it in an election year.