'McMansion' bill facing opposition

A powerful legislator wants to cut deductions for people who own homes larger than 3,000 square feet, but the idea is facing fierce opposition from some consumer and realty groups.

Q. I recently heard that Congress is talking about reducing or eliminating mortgage-interest deductions for homes that are larger than 3,000 square feet. This would be a terrible financial blow to my husband and I, because we have six children (two of them are adopted) who live with us, so our 3,050-square-foot house is already cramped and the interest deductions we are allowed to take on our loan go a long way toward helping us make ends meet. Do you think this proposal will be approved?

A. Opposition to eliminating or reducing interest deductions on mortgages for homes that are larger than 3,000 feet has been growing steadily ever since U.S. Rep. John Dingell, D-Mich., announced his intentions to introduce such legislation last month.

Dingell is chairman of the powerful House Energy and Commerce Committee, which has gained even more influence in the past year as gasoline prices surged and concerns about global warming climbed. The congressman says that "McMansions" of 3,000 feet or more use an unacceptably high amount of energy, so he feels that taxpayers shouldn't get deductions for owning or buying them.

Critics of the proposal range from the consumer-friendly American Homeowners Grassroots Alliance to virtually all of the powerful realty trade groups in Washington. They note that many of today's larger homes, especially those built with the energy-saving technology that has been developed in the past few years, use far less gas and electricity than smaller houses that were built when conservation wasn't such a big priority.

They also say that eliminating the interest deductions for bigger-than-average houses would unfairly punish large families (like yours) who simply need "extra space" and depend on their current write-offs to make their homes affordable.

Opponents of the plan also note that scaling back deductions for larger homes -- many of which have already dropped in value as the nationwide market softened -- could send their prices into a free-fall by discouraging potential buyers who could no longer write off their interest payments on April 15. Foreclosure activity would then rise even faster, which in turn would worsen the nation's growing banking crisis.

Lobbyists in Washington tell me that Dingell's proposal probably won't go far this year, but could gather more support in 2008 as Congress and the Bush administration seek new ways to fund their various programs.

Q. Just for fun, I was surfing the Internet to see what home prices are like in other parts of the world. Many of the ads I saw state that the properties for sale have one, two or even more "hectares" of land. Is a hectare the same thing as an acre?

A. No. A hectare is a French unit of measurement that's used in many foreign real estate markets, from Paris to Peru.

A hectare contains 10,000 square meters -- the equivalent of 2.471 "American" acres.

Q. We recently paid about $21,000 for a new roof on our home. Can we deduct this total on our next tax return, or at least write off 1/20 of its cost each year based on the roof's 20-year life expectancy?

A. Sorry, but no. Home repairs and improvements to a taxpayer's personal residence are never deductible, according to rules published by the Internal Revenue Service.

You can, however, add the cost of the new roof to the "tax basis" of your home to reduce or perhaps even eliminate any taxes on your profit when you eventually sell. So, although installing the new roof won't save any money when you file this year's tax return, it could provide some valuable financial relief in the future.

Q. You recently wrote that Countrywide Financial, the nation's biggest mortgage lender, was among the banks that are having problems because more home loans are going into default and foreclosures are rising. My mortgage isn't with Countrywide, but all of my retirement savings (about $80,000) are in one of its CDs. If Countrywide eventually goes bankrupt, would I lose all my money?

A. First, it's highly unlikely that Countrywide will go bankrupt -- especially now that another lending giant, Bank of America, recently gave the bank a $2 billion infusion of cash.

Your $80,000 certificate of deposit is safe, even if Bank of America's help were not enough to keep Countrywide afloat. That's because all of Countrywide's savings deposits are insured by the Federal Deposit Insurance Corp., a government agency that guarantees full re-payment (up to $100,000) for single accounts at most banks and an additional $100,000 for accounts that are held jointly.

For details, visit the FDIC's Web site at www.fdic.gov or call the agency's toll-free hotline at (877) 275-3342.

© 2007, Cowles Syndicate Inc.