Update: Senate Passes Bill with Expiring Housing Tax Provisions

Today the Senate voted 81-19 to approve H.R. 4853, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The legislation now moves to the House of Representatives, with a vote expected December 16, 2010.  (Updated 12.17.10 – The House of Representatives has approved H.R. 4853 by a vote of 277-148.  The legislation will be signed into law by the president during the afternoon of December 17.)

We previously identified housing sector-specific expiring tax rules that were under debate. The following are worth noting:

  • Section 45L $2,000 tax credit for the construction and sale/lease of a new energy efficient home would be extended for two years: retroactively for 2010 and for qualified homes in 2011
  • The deduction for private mortgage insurance (PMI), as well as FHA, RHA and VA insurance premiums would be extended through the end of 2011, but as under prior law, only for contracts entered into after December 31, 2006. The deduction would still be subject to an income phase-out beginning at $100,000 of adjusted gross income (AGI) ruling out its use for anyone with more than $110,000 of adjusted gross income.
  • The popular section 25C $1,500 tax credit for certain energy-efficient remodeling activities is extended for 2011. However, under the rules passed in H.R. 4853, 25C would be substantially changed (reverted to pre-2009 rules).  The rules are very complicated, so the following listed changes are just broad-strokes:  (1) The credit is scaled back from a 30% credit to a 10% credit for qualified building envelope components; and (2) Qualified installed property must meet increased IECC 2009 requirements, except for windows and skylights which must meet Energy Star requirements.  The installed property must be reasonably expected to last at least five years and must be installed in a principal residence. Building envelope components include insulation, windows, doors and roofing materials.  For other items, a fixed, maximum dollar amount of tax credit is available: $50 for each qualified fan, $150 for each qualified furnace or hot water boiler, and $300 for qualified heat pumps, air conditioners, water heater or biomass stoves. Finally, the $1,500 maximum is replaced with a $500 maximum, with no more than $200 attributable to windows. The $500 cap applies back to the beginning of the 25C program, so taxpayers having claimed between $500 and $1,500 in 25C credits will not be eligible for 25C credits in 2011.  No tax credit is permitted if subsidized by another Federal, State or local government program.
  • The LIHTC exchange program extension for 2010 and 2011 was not included in the legislation.
  • The placed-in-service requirement for GO-Zone LIHTC tax credits would be extended for one year, through the end of 2011.
  • Section 198 brownfield environmental remediation cost expensing would be extended for two years, through the end of 2011.

For non-housing related tax rules, H.R. 4853 proposes:

  • AMT patch (higher exemption amount and allow claim for personal credits) for 2010 and 2011 ($137 billion) (Updated – the 2010 AMT patch included in H.R. 4853 means that the 25C credits for 2010 can be claimed against AMT liability)
  • For 2011 only, reduces the employee FICA tax 2 percentage points from 6.2% to 4.2% ($112 billion)
  • Extends the present-law income tax rates (top rate of 35%) and eliminates the Pease and PEP phaseouts for 2011 and 2012 ($207 billion)
  • Retains the $1,000 child tax credit for 2011 and 2012 ($72 billion)
  • Marriage penalty relief for 2011 and 2012 ($27 billion)
  • Retains the 15% rates for dividends and capital gains for 2011 and 2012 ($53 billion)
  • Estate tax rate of 35% with $5 million exemption for 2011 and 2012 (2010 estates may elect to use EGTRRA rules from 2001) ($68 billion)
  • Increased section 179 small business expensing limits through the end of 2012. Under the legislation, qualified businesses may expense up to $125,000 of property placed in service, and this amount is reduced dollar for dollar by the amount of property placed in service that exceeds $500,000. ($307 million)
  • 100% expensing in 2011 and 50% expensing (bonus depreciation) in 2012  for qualified property (property with recovery period of less than 20 years – no structures) ($21 billion)

The final score for the bill is approximately $858 billion.

18 Responses to Update: Senate Passes Bill with Expiring Housing Tax Provisions

  1. […] Posted on December 16, 2010 by Arul Sundaram| Leave a comment Sounds like the Tax Cut proposal will win out without any more significant changes. The Senate voted 81-19 to approve H.R. 4853. The legislation […]

  2. […] Housing Policy Issues The end of 2010 generated important housing policy-related news. The tax cut extension legislation was signed into law and the Federal Reserve  continued to expand its holdings of government securities and maintained […]

  3. […] IRS Statistics of Income data for 2009, for example, indicate that nearly $6 billion in tax credits were claimed for these two energy-efficient remodeling tax incentives, which we estimate were used in connection with at least $20 billion in home improvement projects. These incentives likely boosted the market in early to mid-2009 and at the end of 2010. The 25D credit remains in place today, but the stimulus version of 25C expired at the end of 2010 and was replaced by a much more limited 25C credit. […]

  4. […] IRS Statistics of Income data for 2009, for example, indicate that nearly $6 billion in tax credits were claimed for these two energy-efficient remodeling tax incentives, which we estimate were used in connection with at least $20 billion in home improvement projects. These incentives likely boosted the market in early to mid-2009 and at the end of 2010. The 25D credit remains in place today, but the stimulus version of 25C expired at the end of 2010 and was replaced by a much more limited 25C credit. […]

  5. […] IRS Statistics of Income data for 2009, for example, indicate that nearly $6 billion in tax credits were claimed for these two energy-efficient remodeling tax incentives, which we estimate were used in connection with at least $20 billion in home improvement projects. These incentives likely boosted the market in early to mid-2009 and at the end of 2010. The 25D credit remains in place today, but the stimulus version of 25C expired at the end of 2010 and was replaced by a much more limited 25C credit. […]

  6. […] expansion for business and professional services, as well as information technology. Given the temporary tax expensing provisions in place for 2011 for some kinds of business investment, it is not surprising to see relative strength in these […]

  7. […] policy and represents a realistic economic and political forecast. It assumes, for example, that the 2001 and 2003 tax cuts, the AMT patch, the so-called “doc fix” for Medicare reimbursement, and current spending levels are […]

  8. […] and home building sector (every $100,000 in remodeling activity creates about one full-time job), the tax credit was significantly weakened for 2011. For more information on the current tax credit rules, please see the NAHB factsheet on both the […]

  9. […] a notable decline in home improvement spending taking place in the third quarter of 2011. As the 25C remodeling tax credit was weakened at the end of 2010 and is scheduled to expire at the end of 2011, this decline is consistent with expectations (that […]

  10. […] a notable decline in home improvement spending taking place in the third quarter of 2011. As the 25C remodeling tax credit was weakened at the end of 2010 and is scheduled to expire at the end of 2011, this decline is consistent with expectations (that […]

  11. medicare eligibility…

    […]Update: Senate Passes Bill with Expiring Housing Tax Provisions « Eye on Housing[…]…

  12. […] In its weakened 2011 form, this tax credit offered homeowners an up to $500 benefit for improving an existing home with qualified energy-efficient property, such as windows, doors, HVAC equipment and insulation. […]

  13. […] upgrades to their homes. In 2009 and 2010, the tax credit was capped at $1,500. For 2011, the lifetime limit was reduced to $500. The credit expired at the end of […]

  14. […] Extends the section 25C energy-efficient tax credit for existing homes through the end of 2013; important remodeling market incentive, although the lifetime cap remains at $500. […]

  15. […] Extends the section 25C energy-efficient tax credit for existing homes through the end of 2013; important remodeling market incentive, although the lifetime cap remains at $500. […]

  16. […] Extends the section 25C energy-efficient tax credit for existing homes through the end of 2013; important remodeling market incentive, although the lifetime cap remains at $500. […]

  17. […] were more favorable than today, with a 30% credit and $1,500 limit. Those rules have since been pared back during successive extension efforts. The current form of the credit expires at the end of […]

  18. […] The section 25C energy-efficient tax credit for existing homes: remodeling market incentive with a lifetime cap of $500. […]

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