Reminder: Capital Gains Relief’s Not Set in Stone

WASHINGTON — If you were like Stanley Delp of Torrance and sold your home for a profit this spring and hoped to pocket the money tax-free, the most recent word from Capitol Hill is: Sorry. You rolled the dice and lost.

That’s the upshot of the joint announcement by the chairmen of Congress’ two tax-writing committees that they want the effective date for any capital gains cuts they pass this year to be May 7, 1997.

Home sellers who had expected to be covered by the Clinton administration’s budget proposal to eliminate capital gains taxes for most home sales on or after Jan. 1, 1997, appear to be out of luck if they closed on their sale before May 7.

The Clinton plan--unveiled at the 1996 Democratic National Convention and quickly matched by Republican presidential opponent Bob Dole--would allow married home sellers who file taxes jointly to keep up to $500,000 of their profits tax-free, and single-filers to keep up to $250,000 tax-free.

The proposal would eliminate the current, complicated system that encourages sellers to “roll over” or defer their gains by buying a replacement home equal to or more expensive than the home they sold within two years. The current, one-time-only $125,000 exclusion of gain from taxation by sellers 55 years or older would also be eliminated from the tax code.

Both candidates called for a Jan. 1, 1997, effective date for their home-sale plans. The Clinton administration’s fiscal 1998 budget submission to Congress specifically asked for the tax-free plan to be “available for all sales of homes occurring on or after Jan. 1, 1997.” Although budget packages carry no legal weight unless enacted, some home sellers evidently believed that the Jan. 1 date was solid.

“You had the Democrats and the Republicans all calling for the same thing, the same date, so it sure sounded like there was some sort of agreement,” Delp said.

Delp sold his Torrance home for $243,000 on Feb. 19 of this year, confident that his $126,000 capital gain on the transaction would be covered if Congress adopted the Dole-Clinton home-sale tax reforms. Now Delp is worried that the May 7 announcement could cost him about $35,000 in federal capital gains taxes.

“I’d rather not have to go out and buy a [more costly] house to do the rollover,” he said in an interview. “But I may have to” rather than come up with $35,000.

Congressional tax experts say they have no idea how many home sellers may have relied on theJan. 1 date proposed by the Clinton administration in its budget.

“Nothing was ever carved in stone,” said a spokesperson for Senate Finance Committee Chairman Sen. William V. Roth Jr. (R-Del.). Roth and his House Ways and Means Committee counterpart, Rep. Bill Archer (R-Texas), announced the May 7 date in the wake of the balanced budget deal between the Clinton administration and congressional Republicans earlier this month.

The purpose of the May 7 announcement, an aide said, was “to eliminate some of the uncertainty in the [stock] market” about when any broad-based capital gains reduction for sales and exchanges of all capital assets--stocks, bonds, real estate and others--would take effect.

Several Capitol Hill staff members emphasized in interviews that even the May 7 effective date is nothing more than a proposal.

“You know how the Hill works,” one aide said. “Don’t count on anything until the fat lady sings.”

In the case of the 1997 bipartisan balanced-budget deal, the aide said, the fat lady won’t even be onstage until late summer or the fall at the earliest.

“We don’t even know what a final tax package will even look like, or whether there’ll ever be one,” the staff member added. And if there’s no overall budget deal, all bets are off on even the most popular, noncontroversial proposals, like the home seller tax cuts.

“There are no guarantees here,” cautioned a Senate aide. “People should not be misled either by the [May 7] date or by the likelihood of a tax package this year.”

What does that mean for home sellers?

If you’re an early 1997 seller like Delp, there is a possibility that tax writers will roll the effective date back to Jan. 1. But the odds aren’t good, in part because the federal revenue loss would be increased by covering more transactions.

For prospective sellers--or those who go to closing after May 7--the outlook is better. The tax committee chairmen have clout. When they say May 7, their committee members--and the president--have to take that seriously. But even they could be forced to roll back--or, more likely, roll forward--from the May 7 date in the heat of negotiations.

Your best bet: Take the congressional aide’s advice and wait for that fat lady.

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Distributed by the Washington Post Writers Group.