The biggest tax breaks in the financial industry bailout may be those that aren't even in the bill.
Banks and other financial institutions can conceivably write off billions of dollars in losses after they sell bad mortgage assets to the government.
Under legislation passed by Congress Friday, the US Treasury is authorized to help financial services firms auction off distressed mortgage investments and might end up buying those securities itself.
The first asset sale under the plan, in which as much as $700 billion of taxpayer money can be used, is not likely for four weeks or more, sources familiar with the plan said Friday.
The troubled mortgage-related securities are now dead weight on banks' balance sheets, smothering the credit system.
If a company ends up selling their securities at a loss to the government program, the amount of the loss may be applied toward a deduction on their corporate taxes -- meaning that in addition to the $700 billion, the U.S. Treasury may also see less money coming back in corporate taxes as a result of its own program.
For instance, if a company has what it had valued at $20 billion worth of such securities on its books, and sells them for $10 billion to the government bailout program, it can claim a tax deduction of $10 billion.
At the normal corporate tax rate of 35 percent, that could add up in theory to a $3.5 billion savings for the company, and $3.5 billion less in taxes paid to the government.
All that assumes, though, that the companies are making enough money to claim the deduction against other profits.
Figuring out how many such deductions there may be is difficult because of so many variables -- particularly since no one is sure what price the government will end up paying for the securities.
"The real question is how much does the Treasury pay for those assets," said James Angel, an associate professor of finance at the McDonough School of Business at Georgetown University.
Angel said he doesn't think the overall impact of business loss tax deductions will be large, because the firms involved would likely get such a deduction whenever they were able to sell the securities.
"However, the ability to realize the deduction sooner rather than later makes it a little bit better for the institutions involved," said Angel.
And he said it was also possible that some banks already may have written down their assets so far, that in selling to the government, they could even claim a profit and end up paying more taxes.
Although the plan was conceived as an emergency measure to immediately restore confidence in credit markets, the cumbersome rule-writing and hiring that must proceed the auctions mean that the first one will not be held for four weeks or so, the sources said.
The House approved a revised $700 billion financial rescue package, ending a weeklong battle over a controversial measure after lawmakers came under pressure to head off a growing financial crisis.
The plan, which was already approved by the Senate, would allow the government to spend billions of dollars to buy bad mortgage-related securities and other devalued assets from troubled financial institutions.
If it works, advocates say, that would allow frozen credit to begin flowing again and prevent a serious recession.
—AP and Reuters contributed to this report.