Tax relief due for some Nebraska homeowners

Legislation passed by Congress to help a troubled housing market also provided much-needed property tax relief for many Nebraskans, said Sen. Ben Nelson, D-Neb.

Nelson, along with Sen. Chuck Hagel, R-Neb., voted last week for the Housing and Economic Recovery Act of 2008.

Nelson said nearly a quarter of a million middle-class Nebraska homeowners will be helped by the legislation.

"Trouble in the housing market is a root cause of our weakening economy, and this bill addresses that issue," Nelson said.  "I'm also very pleased that we were able to provide tax relief to the average homeowner by boosting the amount of property taxes they can deduct."

Nelson said that currently, the opportunity to deduct local property taxes from federal income tax is only available to those who itemize their deductions. 

In 2005, Nelson said more than $700 million in property taxes were deducted by Nebraskans filing itemized federal tax returns. 

"Taxpayers who do not itemize may claim the standard deduction, but the deduction does not adequately account for property taxes," he said.

But Nelson said the new legislation contains new deductions for middle class homeowners.

"What we did last week in Congress makes the tax code fairer for middle class Nebraskans who own their homes but do not itemize," he said. "These are hard-working Nebraska homeowners, many of them elderly, who are the backbone of our nation, and it's about time they got the same property tax break that other homeowners get."

Nelson joined a number of his Senate colleagues to provide a provision for homeowners who do not itemize their federal income tax. Next year they will have a standard property tax deduction of up to $500 for individuals and $1000 for joint filers.

"That's good news for the 247,000 middle-income Nebraska homeowners who don't itemize because they'll have a lower federal tax bill next year as a result of this legislation," he said.

For example, Nelson provided an example of a family earning between $65,100 and $131,450 who's eligible for a $1,000 deduction would save $250 on their federal taxes.

"Middle-class taxpayers are working harder than ever to meet their financial commitments and rising property taxes have not made that any easier," he said.

Nebraska's property tax burden ranks high among the 50 states, Nelson said, and property taxes nationwide have increased by 50 percent since 2000.

"It has been extremely unfair to taxpayers who have been unable to deduct those taxes because the standard deduction has not kept up with the rapid rise in property taxes," Nelson said.

Nelson said the subprime lending abuses, the foreclosure crisis, turmoil in the financial markets and falling home prices have been among the leading causes of the nation's economic woes.

"But I wanted to focus on the modest tax break the bill provides for regular middle-class homeowners, the vast majority of which make their house payments on time and do their best to cope with the market woes, rising energy prices and the like," he said.

Nelson said the total number of Nebraska taxpayers who took property tax deductions in 2005 was less than half of the owner-occupied homes in Nebraska. 

"Congress has made the tax code fairer for middle-class Nebraskans who own their homes but do not itemize," he said. "These are hard-working Nebraska homeowners who are the backbone of our nation, and it's about time they got a break on their property taxes."

 The housing bill includes another Nelson-co-sponsored provision that will reduce the cost of borrowing for infrastructure and public works projects, allowing Federal Home Loan Banks (FHLB) to guarantee tax-exempt bonds issued by local governments. 

Nelson said this is important to local banks and communities in Nebraska as it will result in a lower cost of borrowing to facilitate public investment in communities.

He said that under current law, state and local bonds backed by instruments of the federal government are generally not allowed to retain tax-exempt status with some exceptions. This bill adds FHLBanks to the list of exceptions, Nelson said.

The bill also contains legislation introduced by Hagel in 2003.

 "This legislation will create a strong new independent regulator for Fannie Mae, Freddie Mac and the Federal Home Loan Banks and provide refinancing assistance for troubled homeowners," he said.

Hagel said Fannie Mae and Freddie Mac own or guarantee more than $5 trillion in mortgages, which the taxpayer could be liable for if either were to fail.

"Fannie and Freddie have faced billions of dollars in accounting restatements, paid hundreds of millions of dollars in fines and paid billions of dollars in accounting and consulting fees to clean up their financial mess, and their problems are still not fixed," he said.