On July 30, 2008, the Housing Assistance Tax Act of 2008 (the ?Act?) became law. The Act provides more than $15 billion in tax incentives intended to help bolster the housing industry ? and some revenue offsets to help pay for them.
The Law?s Major Provisions
The new law contains numerous provisions affecting individuals, state and local governments, and companies engaged in the housing industry. Among the principal provisions that may affect you or your business:
Tax Credit for First-time Home Buyers. For homes purchased after April 8, 2008, through June 30, 2009, the law allows up to a $7,500 tax credit for first-time home buyers purchasing a principal residence. However, the credit must be repaid to the government in equal installments over 15 years, beginning with the second tax year after the tax year of purchase. The full credit is limited to buyers with modified adjusted gross income of $75,000 or less ($150,000 or less for married couples filing jointly). A credit phase-out applies for taxpayers with income over the limit.
Standard Real Property Tax Deduction. For 2008 only, a taxpayer who does not itemize deductions may claim an additional standard deduction of up to $500 ($1,000 for joint filers) for state and local real property taxes paid. This provision will especially benefit taxpayers who have paid off their home mortgages and no longer have enough deductions to justify itemization.
AMT Limits for Certain Items Repealed. The alternative minimum tax (AMT) limitations on the low-income housing tax credit and the housing rehabilitation tax credit are repealed for buildings placed in service and for housing rehabilitation expenditures after 2007. Interest on certain tax-exempt housing bonds will be exempt from the AMT
Low-income Housing Credit Cap Increased. The volume cap for low-income housing tax credits is increased for 2008 and 2009, and states have greater flexibility in how to use those bonds efficiently.
Credit Card Information Reporting Rules. A new requirement is imposed on credit card companies and other electronic payment processors. Starting after 2010, these entities will have to report the value of a merchant?s sales to the IRS if those sales exceed $20,000 per year and the merchant has a volume of more than 200 sales annually.
Exclusion for Gain on Certain Residences Disallowed. Gains on the sale of certain residences ? including vacation homes and rental properties that are converted into primary residences and then sold ? will no longer qualify for the full $250,000 ($500,000 for joint filers) capital gain tax exclusion on sale of a principal residence. In general, the exclusion will not apply to the portion of the gain allocable to the time the residence was not used as a principal residence. This provision is effective for sales and exchanges occurring after December 31, 2008.
If you think you will be affected by any of these provisions of the Act or want to learn more, contact us for additional information. We stand ready to help you in your tax planning.
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