The group of the trade associations supporting investment incentives for real estate came apart at the end for the tax bill worked out by House and Senate conferees. Though the participants believe the differences can be resolved, the outcome of the presidential election would leave the fate of the incentives in doubt, regardless of the outcome.
The most dramatic switch came when the National Association of Home Builders decided to actively oppose the measure when conferees dropped a provision in the Senate version that would have provided a credit to first-time home buyers equal to 10% of the purchase price up to a maximum of $2,500.
The conference agreement also adopted House language that included the cost of acquiring purchased mortgage servicing rights among intangibles that would have to be amortized over a 14-year period, about twice the life of the average PMSR contract. At that point, the Mortgage Bankers Association decided not to back the bill, though the group did not actively campaign against it.
The National Association of Realtors continued strong backing for the bill, as did the American Bankers Association. The Savings Community Bankers of America continued of the PMSR provision and because changes in Individual Retirement Accounts were not as generous in the Senate version.
"I realize some people were upset with our decision," conceded Leon Peace, tax counsel for the NAHB. "But our top priority was the home-buyer credit and we couldn't ask our members to support the bill without it, especially when we thought we had assurance it would be in there."
Though unhappy, the other members of the coalition that continued to support the bill were understanding
"The home builders had their reasons," said Stephen D. Driesler, senior vice president for government relations and chief lobbyist for the national Association of Realtors.
"I lay the primary fault on the president for boxing himself into a corner," he added.
Indeed, the White House threat of a veto came despite the fact the conference version of the Revenue Act of 1992 (H.R. 11) contained many of the provisions President Bush wanted. But the revenue raising provisions came up against his campaign promise of never again to support tax increases.
The future for the real estate incentives is unclear. If President Bush is re-elected, any tax legislation will be affected by the campaign promise. The current budge agreement, any incentives that cost tax revenues must be offset by increases.
If Arkansas Gov. Bill Clinton is elected, he won't be bound by such a promise. Nonetheless, he has railed against tax breaks for the rich, some of the real estate incentives might be construed to do just that.
But Angelo R. Mozilo, MBA president, noted that be Democratic Party platform has some language that supports investment in real estate. Mozilo, who also is president and chief executive officer of Countrywide Funding Corp., Pasadena, Calif., said clinton also has expressed sympathy for indexing capital gains.
As adopted by the conferees, the main real estate provisions of H.R. 11 included:
Passive Losses - Losses from real estate activities could be deducted if a taxpayer maternally takes part in the business. The bill defined real estate trade or business to include development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business. Losses could be deducted from any income not just that real estate.
Intangibles - the bill established a 14-year amortization period for specific intangible costs, including the cost of acquiring goodwill and purchased mortgage servicing rights.
Pension Funds - The bill would ease rules for pension fund investment in real estate that has been seized by banks or regulatory agencies.
Depreciation Recovery - The bill would increase to 40 years from 30.5 years the depreciation period for certain real estate.