NAR to Lawmakers: Make Capital Gains Relief Fair for Real Estate

WASHINGTON, D.C.--Although the tax bills being worked out by a U.S. House and Senate conference committee contain a number of favorable provisions for homeowners and investors, the NATIONAL ASSOCIATION OF REALTORS® continues to press for equal treatment of real estate in the proposed capital gains tax relief measures.

In face-to-face meetings in mid-July, NAR President Russell K. Booth thanked Senate Majority Leader Trent Lott, R-Miss., and Sen. Alfonse D'Amato, R-N.Y., two of the conferees, for their support in improving the capital gains relief package from its original proposal in the House Ways and Means Committee.

Booth told them, however, that NAR and other real estate groups would continue to press for equal capital gains relief for real estate in the final bill.

Proposals Discourage Real Estate Investment

At press time, the conference committee had three capital gains relief measures on the table--one from each house of Congress, plus a last-minute proposal from President Clinton.

The House and Senate versions, which passed in late June, would lower the capital gains tax rate to 20 percent for taxpayers in the 28 percent and higher tax bracket and to 10 percent for those in the 15 percent bracket. Gains on real estate sales would be subject to a higher rate, however.

When a real estate asset is sold, the congressional plans would recapture depreciation taken over the life of the investment and tax that at 24 percent in the Senate version and 26 percent in the House version. Gains above the original purchase price would be subject to the 20 percent capital gains tax rate.

"This would repeal the 35-year recapture rules that treat prior years' straight-line depreciation allowances as capital gains," Booth said. "Thus, gains on rental real estate would always be taxed at rates higher than gains on stocks and bonds. We believe this will prove a significant disadvantage over time in attracting new capital into real estate to improve existing properties and to develop new ones."

President Clinton's tax package would provide capital gains tax relief by excluding from taxation the first 30 percent of a gain. This would apply to all investments, including real estate. The remainder of the gain would be taxed at the taxpayer's regular income tax rate. Current depreciation recapture rules would be retained.

In a letter to the White House and the House and Senate leadership, Booth urged the conferees to craft a capital gains cut that treats all assets in the same manner. "We take no position on the method Congress should use--a flat rate or an exclusion--to achieve a capital gains cut. We want equal treatment for real estate," he said.

NAR Praises Tax Plans' Pro-Homeowner Elements

The association has lauded a proposal included in all the tax packages that would allow homeowners to exclude up to $500,000 (joint return; $250,000 for singles) of gain on the sale of their principal residence.

"This is one of the few times that the often-competing objectives of fairness and simplicity work together to benefit taxpayers," Booth said.

NAR also supports a provision proposed in all three versions to allow homebuyers to withdraw, penalty free, up to $10,000 from an Individual Retirement Account or 401(k) pension plan to put toward the downpayment and closing costs of a home.

The tax package was scheduled for consideration by the conference committee in mid-July, with votes on final passage expected in late July.