H.R. 3221, the “American Housing Rescue and Foreclosure Prevention Act of 2008,” was signed into law by the President on July 30, 2008 to support the failing housing market ad help the troubled homeowners. It also aims at tightening lending practices and reform financial institutions associated with that market.
It includes the “Housing Assistance Tax Act of 2008 which provides for important tax law changes that will impact individuals and small businesses.
Some of the highlights are-
Tax credit for First-Time Homebuyers
First time homebuyers purchasing a qualified home after Apr. 8, 2008 and before July 1, 2009, are eligible for a refundable tax credit equal to the lesser of 10{eb914d8c00d6b744d02a9a8064b0bfd5c559be7136358887c29ad495da2b8d17} of the purchase price of a principal residence or $7,500 ($3,750 for married individuals filing separately). Though it is a tax credit, it is more like an interest free loan. The credit that is availed by the taxpayers will need to be repaid in equal annual installments over 15 years.
Additional standard deduction available for property taxes
Taxpayers who claim the standard deduction instead of itemizing deductions are allowed to claim an additional standard deduction for state and local property taxes paid in 2008. Note that this deduction is available for 2008 only. As with all the deductions/credits, the deduction cannot exceed the lesser of state and local property taxes actually paid or $500 ($1,000 for joint filers). Considering that the property appraisals are at all time high, I wonder if this would do any good…
Information Reporting of Merchants’ Credit Card and Third-Party Network Sales starting 2011.
In the year 2011, the gross amount of credit and debit card payments(gross annual revenue) a merchant receives during the year, along with the merchant’s name, address, and taxpayer identification number (TIN) will be required to be reported to the IRS. This has been enacted to nail down the merchants who fail to correctly report income. It, of course, has exceptions for some small businesses with receipts under $20,000 a year. It is believed this will raise over $9.8 billion over ten-years.
Primary residence capital gains exclusion prorated
Capital gain exclusion of $250,000 ($500,000 for married filing joint) that was available on gain from sale of home will now be pro-rated based on the percentage of time the house was used as primary residence in the 5 year period. So if you used the property as rental for 2 years and as your primary residence for 3 years and than you sold the property for a gain of $200,000 than your exclusion under sec 121 will be 60{eb914d8c00d6b744d02a9a8064b0bfd5c559be7136358887c29ad495da2b8d17} of $200,000 which is $120,000 since you used your property as primary residence for 60{eb914d8c00d6b744d02a9a8064b0bfd5c559be7136358887c29ad495da2b8d17} of the time in the 5 year period. In addition, depreciation recapture rules will apply too. This provision will become effective for sale of residence after December 31, 2008 and will be based only on the non qualified use period that begin on or after January 1, 2009.
Interest Earned on Exempt Facility, Qualified Residential Rental, and Veterans’ Mortgage Bonds Isn’t an AMT Preference
The Act provides that for bonds issued after July 30, 2008, tax-exempt interest earned on the following instruments is not a preference item for AMT purposes-
(1) exempt facility bonds -95{eb914d8c00d6b744d02a9a8064b0bfd5c559be7136358887c29ad495da2b8d17} or more of the net proceeds of which are used to provide qualified residential rental projects (2) qualified mortgage bonds and (3) qualified veterans’ mortgage bonds.
Detailed breifing of the Act can be found at
http://tax.cchgroup.com/legislation/2008-Housing-Assistance-Act.pdf