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Tax Provisions in New Housing Act On July 30th President Bush approved the Housing and Economic Recovery Tax Act of 2008 (H.R. 3221, now Public Law No. 110-289). The full text will be posted soon at the Library of Congress and Government Printing office websites (thomas.loc.gov/ and www.gpo.gov/). Here are highlights of its tax provisions: · A new refundable tax credit for first-time homebuyers. Your clients’ adult children may want to take advantage of 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 sold earlier), but in the meantime, it’s like an interest-free loan. · Additional standard deduction for state and local real property taxes paid in 2008. Home owners who claim the 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 single taxpayers and $1,000 for joint filers. This may help older clients who have paid off their mortgages, or clients in states with little or no income tax to itemize. · Limitations on the exclusion of gain from the sale of a principal residence. Beginning in 2009, the taxpayer exclusion from gain on the sale of a principal residence would not apply to any gain allocated to periods of “nonqualified use”. Such use is defined as when the taxpayer is not the principal 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 their 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 tax 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. · Increasing the applicability of the low-income housing credit. Several changes in this law will increase the availability of this credit. · Electing to accelerate AMT credits and research credits instead of bonus depreciation. C corporations eligible to claim the 50% bonus depreciation can choose to accelerate recognition of part of their AMT or R&D tax credits. If so elected, these credits are REFUNDABLE, subject to limitation, even if there is a tax loss. Credits generated through 12/31/05 are eligible for the refundability treatment. Companies that report earnings on a quarterly basis may be in the position of booking a tax asset for the third and fourth quarters of 2008 because of these refundable credits. · 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. · Enhancing the rehabilitation of government leased buildings. Rather than restricting a property owner from full use of the rehab tax credit if more than 35 percent of a property is currently leased by the government, the act would give access to the full rehab credit so long as a state or local government or tax-exempt entity does not lease more than 50 percent of the property. · Delaying the effective date of the worldwide interest allocation election for two years (until tax years beginning after December 31, 2010). An election may be made only for the first taxable year beginning after December 31, 2010. A special phase-in rule is provided relating to the first taxable year to which the worldwide interest allocation rules apply. Pursuant to the phase-in rule, a taxpayer making the election makes an adjustment to foreign source income. · 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 of the Housing Act. Financial institutions will have to reprogram computers by 2011 to capture the information for the report, and those who have credit card revenue will also have to shape up their income reporting compliance.
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