United States Senate Committee On Finance: Present Law And Background Relating To Tax Incentives On Real Estate

US. Senate Committee On Finance - Tax Incentives On Real Estate

Table Of Contents (57 Page Downloadable Publication)

INTRODUCTION ……………………………………………………. 1
I. TAX INCENTIVES FOR HOMEOWNERSHIP…………………………………………………… 2
A. Home Mortgage Interest Deduction ………………………….. 2
B. Deduction for Real Property Taxes………………………….     5
C. Exclusion of Gain from Sale of a Principal Residence ……… 7
D. Tax Exempt Bonds for Owner-Occupied Housing……………………………………………………………….. 8
E. Other Incentives………………………………………………… 12
1. Qualified first-time homebuyer distribution from an individual retirement plan…………………………………………………….. 12
2. Employer-sponsored retirement plan loans ……………….. 13
3. Exclusion from income of certain housing allowances and related deductions ………………………………………………………….. 15
4. Exclusion from gross income of discharge of qualified principal residence indebtedness……………………………………………..17
5. Treatment of tenant-stockholders of cooperative housing corporations…………………………………………………………. 19
II. TAX INCENTIVES FOR RENTAL HOUSING ………………….. 21
A. Low-Income Housing Tax Credit……………………………….21
B. Rehabilitation Tax Credit………………………………………..25
C. Tax-Exempt Bond Financing Residential Rental Property….27
D. Accelerated Depreciation for Residential Rental Property…28
E. Passive Activity Loss Rules and Special Rental Real Estate Rules…………………………………………………………………. 35
III. DATA AND ANALYSIS RELATED TO TAX INCENTIVES FOR
HOMEOWNERSHIP ……………………………………………….. 37
IV. DATA AND ANALYSIS RELATED TO TAX INCENTIVES FOR RENTAL
HOUSING……………………………………………………………. 47

I. TAX INCENTIVES FOR HOMEOWNERSHIP
A. Home Mortgage Interest Deduction Under an exception to the broad rule disallowing a non-corporate taxpayer a deduction for interest referred to as “personal interest,” an individual taxpayer who elects to itemize deductions instead of claiming the standard deduction is allowed a deduction for qualified residence interest.2

Qualified residence interest means interest that an individual taxpayer pays or accrues during the taxable year on acquisition indebtedness with respect to a qualified residence of the taxpayer.3
A qualified residence of an individual taxpayer means the taxpayer’s principal residence (within the meaning of section 121) and one other residence selected by the taxpayer.4

Under this definition a house, condominium, cooperative, mobile home, or boat may be considered a qualified residence.5
For a taxable year beginning before January 1, 2018 or after December 31, 2025, qualified residence interest also includes interest that an individual taxpayer pays or accrues during the year on home equity indebtedness with respect to the taxpayer’s qualified residence.6

Acquisition Indebtedness
Acquisition indebtedness is indebtedness that an individual taxpayer incurs in acquiring, constructing, or substantially improving any qualified residence of the taxpayer and that is secured by that residence.7

Acquisition indebtedness also generally includes indebtedness that is secured by an individual taxpayer’s qualified residence and that results from the refinancing of indebtedness that was considered acquisition indebtedness either under the general definition (that is,
indebtedness that was incurred to acquire, construct, or substantially improve the residence and that was secured by the residence) or under this special rule for refinancing indebtedness.8
The amount of refinancing indebtedness that may be treated as acquisition indebtedness under this…

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