WASHINGTON – When Congress convenes for its 109th session, Sen. Chuck Grassley (search), R-Iowa, plans to introduce a bill outlawing a little-known tax loophole that pays hundreds of thousands of dollars to wealthy homeowners.
It's a move supported by Sen. Max Baucus, D-Mont., the ranking Democrat on the Senate Finance Committee, which Grassley chairs.
The original idea of the loophole was to promote historic preservation, but others say it just protects the rich.
The debate centers on a hefty tax credit for homeowners who agree not to change the historic façade of their building. The homeowners get a tax break equal to about 11 percent of the home's value.
The right to monitor and protect the façade, a so-called easement (search), is donated to a preservation trust, and that donation triggers the tax benefit.
Critics say the problem is that in many places, such as Washington, D.C., preservation laws are already in place. The result is that homeowners get free money to not change a façade they weren't permitted to change in the first place.
"Isn't it kind of ludicrous to be talking about having a tax credit for historic preservation (search) when you live in a neighborhood where you can't change the façade of your home anyway?" Grassley asked.
All over the country are historic districts that call for preservation. In Washington, D.C., 25 historic districts make up 17 percent of the city's total land area.
So it's no surprise that Washington, D.C., has also become the leading city in the nation for historic easements, with 900 granted so far.
The average value of the home that gets the special tax break is $1 million, yielding a $110,000 tax credit.
The credit is supposed to compensate for property values lost by giving up the right to remodel an historic façade, but in fact property values usually go up for historic properties.
Preservationists insist the tax break is useful because in some cities, preservation laws don't exist or they are poorly enforced.
"There's not a political will in those communities to create the kind of regulations we have in Washington," said historic preservation attorney Peter Byrne. "The only way to really get effective control is through the donation of easements."
With Grassley threatening to close the historic-easement loophole, homeowners might think they should hurry up and apply before the law is passed, but it may be too late already. Grassley is proposing to make the law retroactive.
Click in the box near the top of the story to watch a report by FOX News' Steve Centanni.