Housing Assistance Tax Act of 2008
The Housing Assistance Tax Act of 2008 provides a four important tax law changes that impact individuals and small businesses. These tax laws are part of the larger Housing and Economic Recovery Act of 2008 (HR 3221, Public Law 110-289) which provides a number of laws relating to housing and mortgages.
The tax portion of this law mostly concerns housing programs targeted to the investment community. There are a number of revisions to the low income housing tax credit, housing and mortgage revenue bonds, and reform of the rules regarding real estate investment trusts. For individual investors, it is important to note that the low-income housing tax credit program has been expanded, and these credits can now offset the alternative minimum tax. Also, tax-exempt interest from housing bonds is now exempt from AMT.
Quick highlights of tax provisions for individuals and small businesses:
- Tax credit of up to $7,500 for first-time homebuyers, to be repaid over 15 years.
- Additional property tax deduction for people who don't itemize.
- Reporting of credit card and merchant payments to the IRS.
- Prorated capital gains exclusion for real estate for periods of non-primary use.
First Time Homebuyer Tax Credit
There's a new, refundable tax credit of up to $7,500 for purchasing a primary residence. The credit is available to first-time homebuyers. The credit is available for homes purchased after April 9, 2008, and before July 1, 2009. And the credit will need to be repaid in equal installments over 15 years. This amounts to what tax blogger Kay Bell calls "an interest-free loan."
Additional Standard Deduction for Property Taxes
Homeowners can claim an additional standard deduction for property tax if they do not itemize. The additional amount is limited to $500 or $1,000 for joint filers. The amount is claimed as an additional amount on top of their standard deduction. The deduction is valid for the 2008 tax year only.
Income Reporting for Credit and Debt Card Payments
Income received through credit and debit card transactions will be reported to the Internal Revenue Service starting in the year 2011. Card payment processors will report gross annual receipts to the IRS for businesses with merchant accounts. The income reporting is intended to crack down on merchants who "fail to report accurately their gross income," according the House Ways and Means Committee report. There are some exceptions to the income reporting for smaller merchants with card payments under $20,000 per year.
Prorated Capital Gains Exclusion for Residential Real Estate
The amount of profit from the sale of a house that can be excluded is now based on the percentage of time when the house was used as a primary residence. Previously, the tax laws allowed a homeowner to exclude up to $250,000 in gains (or $500,000 for joint filers) as long as the homeowner owned and lived in the house for at least two years out of the five years ending on the date of sale. Now, any gains will need to be allocated based on usage. Only gains allocated to time spent living in the property as a primary residence will qualify for the tax exclusion.
Summaries and Media Reports:
- Housing Bill Has Something for Nearly Everyone (New York Times)
- America's Housing Bill (The Economist)
- Summary from the Ways & Means Committee [pdf]
- CCH Tax Briefing [pdf]
- Press reports collected by TaxProf Blog
Comments
I’m assuming this will work like the Earned Income Tax Credit, right? So… if you owe taxes, you can get $7,500 deducted from the balance due, and, if you are already getting a refund, you get an additional $7,500? Is this correct?
Martha, you are more or less correct in that the first-time home buyer credit will be a refundable tax credit. But unlike other tax credits, this one will need to be paid back over 15 years.
The new standard deduction for 2008 property taxes, does it have to be paid in the year of 2008 for 2008 taxes, or can you pay it in 2009 for 2008 taxes?
Roddy, to get the deduction for 2008, you’ll need to pay the property tax in 2008.
I’m getting conflicting accounts on the first-time home buyer tax credit. One person is telling me if I am already getting a refund, I won’t get an extra $7,500 if I claim this credit, but from what you are saying, I will get the extra money even if I am already getting a refund.
I understand that it will need to be paid back, but can you clarify whether or not those of us who are already due a refund will get an extra $7,500?
Thanks!
I bought a house in April 2008, but we signed all of our paperwork on April 2nd. Does that mean we don’t qualify for the tax credit?
Cheryl, that’s right. The home must be purchased after April 9th.
Mike, the first time home buyers credit is a fully refundable credit. So if you’re getting a refund and you qualify for the credit, then your refund will be $7500 higher. See this notice from the IRS about the credit.
I purchased my first home in January 2008. Was there any kind of program then for those that just missed the designated time for this credit? I’m kind of confused as to why it didn’t just include all of 2008. It’s not as if the market was any better in January compared to April. I feel slighted a bit on this one.
I agree with you, Matt. It does seem to me they should have made this tax credit available for all of 2008.
I live in Houston Texas, which was a declared a presidential disaster area in 2008 from Hurricane IKE. Correct me if I am wrong but according to this article, it appears the the Housing Act of 2008 that George Bush signed off there is an exception if you purchased a home in the year of a federally declared “disaster area”
“In general, the Act temporarily waives the First-Time Homebuyer Requirement for residences located in Presidentially declared disaster areas. In addition, residences located in such areas are temporarily treated as targeted area residences for purposes of the income and purchase price limitations. The provision applies to obligations issued after May 1, 2008 and before January 1, 2010 and is effective on the Enactment Date.”
URL – http://www.chapman.com/media/news/media.618.pdf
Also, see the site below
“Comment. Generally, a first-time homebuyer for a state or local HFA program is an individual who has not had an ownership interest in a principal residence for the past three years. However, individuals who purchase homes in “targeted areas” may be treated as first-time homebuyers even if they have had an ownership interest in a principal residence in the past three years. Additionally, the new law waives the first-time homebuyer requirement for residences in Presidentially-declared disaster areas and treats these disaster areas as “targeted areas.”
http://tax.cchgroup.com/legislation/2008-Housing-Assistance-Act.pdf
I dont consider myself a know it all, but it appears that the owning a home in the past 3 years may be waived, since I purchased in June 2008, which as of May 10, 2008 any home purchased in a Presidentially Disaster Area, would have the FTHB qualifications waived. As long as a home was purchased in that area.
Thoughts??
2008 first time himebuyers tax credit is TOTALLY unfair now! WHY should the 2009 buyer not have to pay this back when the 2008 homebuyers tried to do the right thing first? This payback provision should be taken away for the 2008 homebuyers! Not fair!!
I bought a house on April 4th, so i missed the cut-off date by five days. Seriously who makes on it on April 9th? What so special about that day? And what goverment was in charge of this ruling? Why didnt they just make it all of 2008? I mean, I not upset about having to pay it back, like in 2009, but April 9th? Come on…
I closed my house on March 27th. What is the speciality of April 9th date ? whom should we approach to get the credit ?
Thanks,
Deepak
Most examples of the changes in capital gains tax exclusion are about people who buy a house in 2009. What about me? I bought mine 26 years ago and lived in it until I started renting it 2004 through mid 2008 then started living it it again. Do I have to live in it some more to exclude any gain? When I am able to exclude, can I exclude all or do I prorate all the way back to the day 26 years ago when I bought it?