Bayh, Hill hopeful for passage of new property tax break

Bayh, Hill hopeful for passage of new property tax break
By Mike Smith
AP Political Writer
April 9, 2008 8:43 PM

Indiana Sen. Evan Bayh and U.S. Rep. Baron Hill are optimistic that Congress will create a new property tax deduction this year for homeowners who don't itemize on their federal returns.

The deductions being pushed by the two Indiana Democrats are in separate bills aimed at helping homeowners and businesses weather the housing crisis. The Senate was expected to approve its version of the legislation Thursday.

That includes a provision Bayh proposed that would create a deduction for homeowners who don't itemize of up to $500 ($1,000 for joint filers) in this year's state and local property taxes. That would be on top of the current standard deduction and apply to this year's federal taxes payable in 2009.

The deductions in the House bill would be $350 for single filers and $700 for joint filers. Lawmakers will try to reconcile differences in the House and Senate bills in a conference committee, but Bayh said there was bipartisan and bicameral support for the one-year property tax deduction for homeowners who don't itemize.

"It's likely to become part of the final legislation that we send to the president," Bayh said. He said although President Bush had expressed some reservations about other parts of the Senate bill, the new deduction was not among them.

Under current law, only taxpayers who itemize are permitted to deduct their property taxes from their federal tax liability.

Bayh said about two-thirds of the nation's taxpayers _ including more than 900,000 Hoosier homeowners _ don't itemize on their federal tax returns. The standard federal deduction is adjusted each year for inflation, but it does not take into account property tax assessments.

Bayh and Hill issued news releases saying that based on U.S. Census data, the total amount of state and local property taxes paid in the U.S. increased by 50 percent from 2000 to 2006. Over that same amount of time, inflation increased by 17 percent, and median household income declined by $1,000.

Bayh said that under the deduction provision in the Senate bill, a Hoosier family that pays $1,200 this year in property taxes and makes between $63,100 and $131,000 would save up to $250.

Hill said millions of homeowners are facing soaring property tax bills and declining home values. He said the tax code compounds the problem by excluding nearly 30 million middle-class homeowners who don't itemize their tax returns from being able to deduct their property taxes.

"The majority of Americans who don't currently benefit from property tax deductions include seniors and families who have paid off their mortgages and no longer itemize," Hill said.

The Senate bill would not allow homeowners to claim the new deduction if their property tax rates are raised between April 2 and the end of the year.

Bayh said he was skeptical about that provision, but said some lawmakers were concerned that local governments would raise property tax rates knowing it would be subsidized by the new tax deduction.

He said it would be hard for the Internal Revenue Service to comply with such a provision, and his office said it was trying to get the provision removed or at least make sure it is not included in any final bill. Katie Moreau, a spokeswoman for Hill, said it was not included in the House bill.