2008 Housing Bills
The impact of the housing financial crisis is showing few signs of recovering
in the near future. In response to that Congress took action in late 2007
to address the tax consequences of foreclosures or short sales of a taxpayer's
personal residence. Congress continues to look for ways to aid our economy
in this area and there are multiple bills in process.
Realize that at this time these are simply bills being considered. About the
only thing that we know for sure is that they will be different by the time
they become law.
First-time Home Buyer Credit
The Housing Assistance Tax Act of 2008 (H. R. 5720) includes a section to establish
a tax credit for first-time home buyers. As it currently stands, this would be
better called a loan that will probably not impact your ability
to borrow additional money.
We take the "loan" position because the proposed law would require the tax
credit to be paid back over a 15 year period begining the second year after
the credit is received. This loan, er credit, is
interest-free and the amount is up to 10% of the purchase price of the home,
or $7,500 ($3,750 if married but filing separately), whichever is smaller.
The loan is paid back in equal installments.
There is a phase-out on this provision. The amount available will phase out
for taxpayers with an AGI over $70,000 or
$110,000 if filing a joint return.
The provisions of HR 5720 appliy to residences purchased after April 8, 2008.
There is a recapture provision if the residence is sold or ceases to be a
personal primary residence before the amount is paid back.
A similar proposal is included in the Foreclosure Prevention Act
of 2008 (H. R. 3221) as amended by the Senate. The amount listed in this bill
is $7,000. This particular credit appears to be a real credit, but can only
be taken against a tax obligation. Also, the credit is split equally over
2 years. There are circumstances that would require paying it back to the
government, and a number of items in "the fine print" about eligibility, etc.
Now a little bad news for those hoping to sell their residence soon, or for
the real estate agent trying to close a sale: This credit is only applicable
on homes purchased after the bill is enacted (i.e., signed by the President).
So depending on how big of a hurry one is in, it might merit waiting and
watching.
One final comment to HR 3221: the basis in your home must be reduced by
the credit you receive.
This could incresae your capital gains taxes upon sale of the house
in some situations.
Property Tax Credit
Another provisions of the Housing Assistance Tax Act of 2008 is to allow an
additional deduction from income for property tax when taking the standard
deduction. The amount is limited to $350, or $700 if filing a joint return.
The deduction is applicable only to real property, so the Vehicle License Fee
that Californians pay to renew the license on their vehicles does not count.
Similarly, the Foreclosure Prevention Act of 2008 (H. R. 3221) as amended by
the Senate also has a provision for a deduction fromincome for property taxes
paid on the primary residence when taking the standard deduction amount.
This bill sets the amount at $500, or $1,000 if filing a joint return.
Other Activity
There are many other provisions of the Housing Assistance Tax Act of 2008 that
relate to tax treatment of certain types of investment, etc. Most of those
are more obscure and do not affect the majority of taxpayers.
There also a bill in process that will significantly revamp the FHA and the
rules associated with acquiring a home mortgage. The concept is to strengthen,
clarify, and simplify the disclosure and other procedures in an attempt to
help people from entering into a mortgage that they will not be able to
handle. The bill is rather extensive and cannot be easily sumarized here.
If you care to research this yourself, look for H. R. 3221.
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