Thursday, April 25, 2013
The hearing will consider how certain Federal tax provisions affect the housing sector and homeownership – and the benefits of such investment. It will explore how tax policy affects the relative level of investment between residential real estate and other parts of the economy (such as business investment).
- Mark Fleming (Chief Economist, CoreLogic
- Eric Toder (Co-Director, Urban-Brookings Tax Policy Center)
- Jane Gravelle (Senior Specialist, Congressional Research Service)
- Mark Calabria (Director of Financial Regulation Studies, Cato Institute)
- Phillip Swagel (Professor, University of Maryland School of Public Policy)
- Gary Thomas (President, National Association of Realtors)
- Robert Dietz (Assistant Vice President for Tax and Policy Issues, National Association of Home Builders)
- Thomas Moran (National Multi Housing Council and National Apartment Association)
- Robert Moss (Housing Advisory Group)
In connection with the hearing, the Joint Committee on Taxation has released Present Law, Data, And Analysis Relating to Tax Incentives for Residential Real Estate (JCX-10-13):
This document ... provides general background on the tax incentives for residential housing. The first part of this document describes the tax provisions that offer incentives for homeownership. The second part describes the tax provisions that offer incentives for rental housing. The third part provides a discussion of the economic incentives and data related to residential housing.
Several provisions of the Code provide favorable tax treatment to homeowners. These include: (1) the home mortgage interest deduction; (2) the deduction for real property taxes; (3) the exclusion of gain from sale of a principal residence; (4) tax-exempt bonds for owneroccupied housing; (5) mortgage credit certificates; (6) qualified first-time homebuyer distributions from an individual retirement plan; (7) exclusion from gross income of the rental value of parsonages and military housing allowances; and (8) exclusion from gross income of discharge of certain qualified principal residence indebtedness.
There are also some tax incentives that provide favorable treatment to rental housing. These include: (1) the low-income housing tax credit; (2) the rehabilitation credit; (3) the exclusion of interest on State and local government qualified private activity bonds for rental housing; (4) accelerated depreciation for rental housing; and (5) exceptions from the passive activity loss rules for rental real estate activities. Many of these incentives increase the rate of return to investment in the residential rental housing sector and may increase the supply of rental housing.
Some of these provisions are broad in their applicability while others are relatively narrow in scope. For example, approximately 37 million returns claimed $394 billion of itemized deductions for home mortgage interest paid for 2010. That same year, only 41,733 returns claimed mortgage interest credits through mortgage credit certificates totaling $51.2 million.
While economists generally reason that subsidies may lead to inefficient outcomes, a rationale to subsidize homeownership may exist if there are spillover benefits (“externalities”) that accrue to someone other than the homeowner. For example, if homeowners maintain their homes better than renters, this may benefit others in the form of aesthetics or in fostering other desirable neighborhood characteristics such as lower crime. Part three of this document includes a review of the economic literature related to identifying and measuring the externalities of homeownership.