2009 Federal Taxation Committee
National Association of REALTORS®
2009 REALTORS® Conference
San Diego Marriott Hotel & Marina
Marina Ballroom E, South Tower, Level 3
Friday, November 13, 2009
1:30 AM - 4:00 AM

Chair: Mike McGrew, KS
Vice Chair: Max Gurvitch, NY
Committee Liaison: Lance Lacy, TX
Committee Executive: Linda Goold

I. Call To Order

II. Approval of Previous Meeting's Minutes

III. Unfinished Business
A. Mortgage Interest Deduction Limits

NAR C.A.R. Policy:
NAR and C.A.R. oppose any changes to current law.

Individuals are permitted to deduct mortgage interest paid on mortgage debt of up to $1 million. The deduction is available for interest on mortgages for a principal residence and one additional residence. The $1 million limitation represents the combined allowable debt on two residences. Mortgage interest on up to $100,000 of debt on home equity loans or lines of credit also qualifies for the deduction.

As part of its FY 2010 budget, the Administration has proposed limiting the value of the MID for upper income taxpayers by, in effect, converting the deduction to a 28% tax credit for those individuals who are currently in the 33% or 35% tax brackets. Individuals with incomes below $250,000 would generally not be directly affected by this proposal.

The mortgage interest deduction (MID) is a remarkably effective tool that facilitates homeownership. While only about 30% of all taxpayers in any given year itemize their deductions, more than 3/4 of homeowners utilize the deduction over the period they own their home.

Currently, taxpayers in the 33% and 35% income brackets are able to reduce their taxes through deductions for mortgage interest payments, charitable contributions, local taxes and other expenses by 33 and 35 cents, respectively, on the dollar. Under the Administration’s proposal, these individuals would only be able to reduce their tax bill by only 28 cents on the dollar. The Administration estimates that the change would raise $318 billion over the next 10 years, and has targeted the funds for planned health care reforms.

While NAR has supported and applauds the efforts of the Obama Administration in taking aggressive measures to stabilize both the housing market and the nation’s economy, NAR has aggressively expressed its opposition to the Administration proposal. NAR believes the proposal is ill-timed and ill-advised. It would have adverse impact on housing values and the pace of economic recovery.

Most members of Congress have also opposed the proposal. To date, limits on itemized deductions have not been part of the legislative agenda. Note, however, that in August 2009, the Congressional Budget Office (CBO) has released its annual report identifying possible revenue sources. The CBO report is NOT legislation; it is more like an academic exercise to explore options. A brief description of the current CBO proposals is attached.

CBO Overview of Proposed Changes to MID
NAR Letter to President Obama on Changes to MID
NAR Webpage on MID

B. Like-kind Exchange -- Qualified Intermediaries

NAR Policy:
The like-kind exchange technique is fundamental to the real estate investment sector. Every phase of the transaction should be retained. Safeguards should be available to protect the real estate investor's assets during every phase of the transaction, particularly during the phase when the qualified intermediary holds property and funds on behalf of the investor.

C.A.R. Policy: 
That C.A.R., in conjunction with NAR, look into the issue of accommodators/qualified intermediaries of 1031 exchanges and how to safeguard exchanging taxpayers and our industry members vis-à-vis the practice of accommodators/qualified intermediaries.

If a real estate investor utilizes a 1031 exchange, the profits from the sale of one property are directly used to purchase a second property and capital gains taxes are deferred until that property is sold.  However, the business of 1031 exchange accommodators is largely unregulated at the federal and state levels of government with hundreds of independent exchange accommodators across the country. 

No legislation related to Section 1031 is expected in 2008. The IRS, however, may examine the role of qualified intermediators and may issue regulations or other guidance to protect investors' assets.  NAR has also worked with the Federation of Exchange Accommodators (FEA), which is the governing association for many of the accommodators on the issue. 

C. First-time Homebuyer Tax Credit

Congress has passed an extension of the homebuyer tax credit.  The new credit runs until April 30, 2010, but includes a 60-day window for contracts entered into on or before April 30, 2010 to close and still be eligible for the tax credit.  The extended credit is still $8000 for first-time homebuyers, but the income limitations have been increased to $125,000 for individuals and $225,000 for joint filers.

For homeowners who have been in their current principle residence for at least five-years, they are also eligible for a $6500 tax credit with the same income limitations.

The tax credit is available only for the purchase of principal residences with a purchase price of $800,000 or less.

Additionally, the tax credit extensions incorporates aspects of the Service Members Home Ownership Tax Act of 2009, which eliminates the recapture requirement for military personnel, including members of the Foreign Service and intelligence community who were forced to sell as a result of an official extended duty of service and allows military personnel serving outside the United States for at least 90 days in 2009 or 2010 one additional year to qualify for the credit.  It also includes stronger anti-fraud language and is estimated

This proposal is estimated to cost $10.8 billion over 10 years.

IV. New Business
Health Insurance Reform Tax Credits

NAR Policy:
NAR supports the passage of health reform measures that will address the access and affordability problems that the self-employed and small employers face when looking for health coverage. Solving the problem of the uninsured must be a top legislative priority for Congress.

C.A.R. Policy:
While C.A.R. did not take formal policy, at the January 2009 C.A.R. Business meetings, the C.A.R. Healthcare Working Group offered the following policy recommendations which were heard and not changed at the Federal Issues Committee and the Board of Directors.

Introduction: That C.A.R. recognizes the need for healthcare reform and the substantial calls for change coming from numerous sectors of society.  While REALTORS® are not experts on all aspects of healthcare reform, it is appropriate for REALTORS® to be involved in the issue as it impacts REALTORS® cost of business and quality of life.  Additionally, rising healthcare costs can limit a person’s ability to be able to afford both health insurance and the American dream of homeownership.  Furthermore, a recent NAR study found that concerns with health insurance and healthcare were among the top domestic policy concerns for REALTORS®.

C.A.R. believes that healthcare reform should include the following:

1. Healthcare insurance reform should continue to be a hybrid of the private and public sector.  There should be the creation of new programs and policies, but the private market should not be restricted or eliminated.

2. Health insurance should be made available, affordable, and portable for all; including premium stability and available options.  Insurance should cover pre-existing conditions and be continuous.

3. There should be an individual mandate for health insurance.  The individual mandate must include incentives to assist those unable to afford insurance as well as disincentives for those who fail to participate.  This includes both the expansion of current programs and financial incentives.

4. There is the need for financial incentives for small business owners and the self-employed in order to assist them in gaining access to affordable health insurance.

5. There should be support for a Federal Healthcare Board that would function similar to the Federal Reserve and set minimum mandates, set minimum standards such as preventative health and long-term care, and allow medical providers to offer appropriate care.  The Federal Healthcare Board would be independent, but still accountable to elected officials and the American people.  The Federal Healthcare Board would be staffed by experts in the healthcare and medical field and establish guidelines that programs can follow.

6. Health insurance should come in clear and transparent language concerning what services are covered and how they are covered.

7. There should be the creation of a secure IT database for medical providers that protects patient’s privacy and helps reduce administrative costs.  The database needs to be in a universal programming code so that all providers are able to access and update the records when needed.

8. There should be efforts made to help recruit and retain more healthcare providers, particularly doctors and nurses.

Twenty-eight percent of REALTORS® - more than 350,000 individuals - are uninsured. As part of efforts to address the health insurance needs of members, NAR has advocated for more than six years for reform of the health insurance markets that provide coverage to the self-employed and small employers. NAR continues to (1) work on the development of a viable legislative vehicle to address the health insurance problems facing the nation’s self-employed and small employer community and (2) represent the interests of the REALTOR® community in the larger comprehensive reform debate that is now ongoing.

The House is expected to move their final version of healthcare reform to the floor for debate and vote around Veteran’s Day (Early to Mid November).  There could be slight delays as leadership tries to work out the final details within their own caucus.  Senate Majority Leader Reid (D-NV) had announced plans to begin floor debate once the Congressional Budget Office had been able to score the final draft.  Their timeline is expected to be delayed with amendment votes as will not be completed until December, possibly not until January 2010.

While each of the five bills approved between July and October differ in their details, all share a common underlying framework. Each includes a new health insurance marketplace (i.e. an exchange), a requirement that all individuals purchase health insurance (i.e. an individual mandate), a parallel requirement for employers to provide some level of support for their employees’ health insurance coverage (i.e. an employer mandate), tax credits for individuals who purchase their own coverage and employers who provide employee health benefits, as well as very significant changes to the way in which private insurers could underwriting and price health insurance policies for both individuals and employer groups.

The self-employed and small employers, such as REALTORS® and realty firms, would benefit from the significant underwriting and rating reforms in each bill. These reforms require insurers to treat individuals very much the same as they have always treated participants in group plans. These include requiring insurers to accept all applicants and renew all policies, banning the use of pre-existing conditions for pricing purposes and significantly limiting how much an individual could be charged based on their age or their family structure than is currently the case under existing state insurance regulations. While each of the measures include provisions that would ‘pay-for’ the new spending, none of those provisions include any changes to the mortgage interest deduction.

Given the fluid nature of the bills' provisions, NAR has not taken a formal position on any of the health reform bills. NAR has though communicated with each of the policy committees, leadership and individual offices on the impact of the various components of each bill on the REALTOR® population.

V. Adjournment