HOME

HOUSING AND ECONOMIC RECOVERY ACT OF 2008 SIGNED BY PRESIDENT BUSH

August 9, 2008

On July 30th, President Bush signed approved the Housing and Economic Recovery Act of 2008.  Here are the highlights of the tax provisions included in the HERA of 2008:

A new refundable tax credit for first-time homebuyers

This is a new refundable credit equal to the lesser of $7,500 or 10% of the price of a first home purchased between April 8, 2008 and July 1, 2009.  The credit phases out at AGI levels over $150,000 for MFJ and $75,000 for singles.  The credit must be repaid over 15 years in equal installments (or entirely repaid if the home is sold before the 15 year period expires), but in the meantime it’s like an interest-free loan.  This is a credit that will be very helpful to some of you as you purchase first-time homes during this year.  If you are planning a purchase this year, you should strongly consider timing the purchase to take advantage of this credit.  Even with the repayment provisions, it’s an advantage to you.

Additional standard deduction for state and local real property taxes paid in 2008

This is one that is a long time coming!  Home owners who claim a standard deduction would get an additional deduction for state and local real property taxes for 2008.  The maximum amount that may be taken for this additional standard deduction is the lesser of the real estate taxes paid or $500 for singles and $1,000 for joint filers.  This deduction is designed to help older clients who have paid off their mortgages or clients in states with little or no state income taxes to itemize.  This is a deduction that will help many of you!

Limitations on the exclusion of gain from the sale of a principle residence

Beginning in 2009, the taxpayer exclusion from gain on the sale of a principle residence would not apply to any gain allocated to periods of “nonqualified use.”  That use is defined as when the taxpayer is not the principle resident of the dwelling (i.e. when the taxpayer used the home as a vacation home or rental).  However, “nonqualified use” does not include periods when the homeowner vacated the property for military or other official service, change of employment, health conditions or other unforeseen circumstances.

Eliminating costs on housing programs by the AMT

Taxpayers who claim the low income housing credit and the rehabilitation tax credit will be able to offset these amounts against the AMT.  In addition, interest on tax-exempt housing bonds would no longer be applicable to AMT for housing bonds issued after July 30th.

Protecting identities in real estate transactions

Rather than requiring the seller of real estate to provide their social security number to the purchaser, sellers may now give their personal information to an independent third party for verification to prevent identity theft.

Information reporting on credit card transactions

Beginning in 2011, financial institutions will have to annually report the gross amount of credit cards processed for businesses.  This report will include the name, address, and taxpayer ID of the payee, who will receive a copy of the report.  This is an attempt to capture possibly unreported cash income and is expected to raise $7.6 billion over 10 years as part of funding the HERA of 2008.  Financial institutions will have to reprogram computers by 2011 to capture information for the report, and those who have credit card revenue will also have to shape up their income reporting compliance.

These are a few of the highlights.  As more information becomes available to us, we will post any clarifying information on our website.  Please don’t hesitate to call us if you have questions about any of these highlights, and we can analyze your tax situation to see if the changes impact you!