HUD seeks increase in funding for fiscal 2000 The Clinton Administration has submitted a fiscal 2000 budget to Congress that calls for a $2.5 billion increase in budget authority for the U.S. Department of Housing and Urban Development (HUD) and 100,000 additional Section 8 vouchers.

The budget provides $28 billion in budget authority, up from the $25.5 billion appropriated for fiscal 1999. However, only $23.8 billion will count as fiscal 2000 funding because $4.2 billion of the $10.6 billion requested for Section 8 contract renewals won't become available until the beginning of fiscal 2001.

Also, HUD is proposing to earmark 15,000 of the 100,000 new vouchers for elderly tenants in low-income housing tax credit projects and to fund these vouchers from the so-called mandatory side of the budget, which isn't subject to the regular appropriations process. These steps would provide some relief, at least temporarily, from the tight caps on discretionary spending under the 1997 budget agreement.

The Administration also wants to expand the low-income housing tax credit program by raising the state per capita limit on tax credits to $1.75. Unlike an industry-backed proposal the Administration plan won't index the cap for future inflation.

In addition to the 15,000 vouchers for tax credit projects, the budget would provide 25,000 vouchers to support welfare-to-work efforts and 18,000 to help the homeless find permanent affordable housing. The remaining 42,000 vouchers would be allocated to public housing agencies to help low-income families on their Section 8 waiting lists. The budget also includes the money needed to renew existing contracts for 2.4 million Section 8 units.

To finance multifamily housing, HUD is seeking authority to issue $18.1 billion in commitments for Federal Housing Administration-insured mortgages. The department is also calling for $200 billion in commitment authority for Government National Mortgage Association-guaranteed mortgage-backed securities.

The budget also includes $1.61 billion for the HOME housing block program, which provides funds to state and local governments to support affordable housing efforts. HOME funds can be used for rental and ownership housing. The fair housing budget includes $47 million for programs, a $7 million increase from fiscal 1999.

Rural developers face cuts in Section 515 housing progra m For rural housing developers, the fiscal 2000 budget for the Department of Agriculture shows a continuation of the steady decline in the Section 515 rural rental housing program. The budget includes only $100 million for Section 515 loans, down from the $114.3 million appropriated for 1999. The 1998 program level was about $149 million, and only a few years ago, appropriations topped $500 million.

The budget does provide an increase in funding for rural rental assistance and for Section 538 guaranteed multifamily loans. Rental assistance would increase from $583 million in fiscal 1999 to $640 million, though $200 million won't become available for use until the beginning of fiscal 2001. The Section 538 program would nearly triple, from $75 million to $200 million, though $100 million would be contingent on enactment of legislation to eliminate the requirement that 20% of the loans be subsidized through interest rate buydowns.

IRS proposes rules for taxes on installment sales The Internal Revenue Service has proposed rules on capital gains taxation for real estate installment sales to address the depreciation recapture requirement of the 1997 tax act. The 1997 act generally reduced long-term capital gains rates from 28% to 20%, but provided a 25% rate for the portion of gain on real estate sales attributable to straight-line depreciation. In the treatment of periodic payments in installment sales, the regulations would tax all gain at the 25% rate until the depreciation is fully recaptured. Additional gain would be taxed at 20%.

The IRS says this front-loaded allocation method avoids a situation where some gain might be taxed at 20% even if the total gain is less than the recapture amount. This possibility could arise if the installment obligation is subsequently sold at a discount.

For payments received on or after the May 7, 1997, effective date of the 1997 act for sales before that date, the regulations would treat all pre-May 7 payments as if the front-loading of depreciation recapture had been in effect. For installment payments received on or after May 7, 1997, but before the effective date of final regulations, if the amount of 25% gain actually reported is less than the amount determined under the front-loaded method, the lower amount would be used in calculating the additional amount of gain to be taxed at 25%.

HUD's proposed fiscal 2000 budget includes the following provisions:

* 100,000 incremental Section 8 housing vouchers

* $18.1 billion for FHA multifamily loan programs

* $1.61 billion for HOME housing block grants