| Summer 2008 |
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TaxAdvisor
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Housing Act of 2008
On July 30, the President signed into law H.R. 3221, the "American Housing
Rescue and Foreclosure Prevention Act of 2008" otherwise known as the Housing
Act. This sweeping measure is designed to shore up the ailing housing market as
well as tighten lending practices and reform financial institutions associated
with that market. It also contains a number of tax changes, including:
- Tax breaks for homebuyers and some homeowners
- Relaxed requirements for tax-exempt bonds
- Eased AMT rules
- Tax changes for businesses
- Highly specialized changes affecting low-income housing and special
investment vehicles called Real Estate Investment Trusts (REITs)
However, retail business, vacation and rental property owners are among those
who may be affected by an increase in tax, or offsets, to pay for all the new
housing tax incentives.
Included is a brief overview of the more widely applicable tax changes in the
Housing Act. Please call our offices for details of how the new changes may
affect you, your family, your investments or your business.
Offsets
Reduced homesale exclusion for some sellers. The amount of profit from
the sale of a house that previously could be excluded from income is now based
on the proportionate amount of time when the house was used as a primary
residence. This new income inclusion rule applies to sales after December 31,
2008. The computation of the proportionate time not used as a primary residence
does not include any use prior to 2009. Also excluded is the time a former
principal residence sits idle before being sold if not put to some other use.
Information reporting of merchants' credit card transactions. After
2010, banks will be required to file an information return (1099) with the IRS
reporting the total dollar amount of credit and debit card payments a merchant
receives during the year, along with the merchant's name, address and taxpayer
identification number (TIN).
Incentives
Specialized AMT relief provisions. The new law includes the following
specialized relief measures for individuals and businesses:
- Separate income tax credits for putting up low-income housing and
rehabilitating older buildings. Under current rules, these tax credits are
allowed in full against regular income taxes, but can't be used to offset the
AMT. Under the new law, the low-income housing credit claimed for buildings
put in service after 2007, and the rehabilitation credit for post-2007
expenses, can both be used to offset the AMT.
- AMT exemptions for three special classes of bonds issued after July 20,
2008: (1) certain exempt facility bonds used at least 95 percent for
qualifying residential rental projects; (2) qualifying mortgage bonds; and (3)
qualifying veterans' mortgage bonds. Currently, interest on certain tax-exempt
private activity bonds is taxed for AMT purposes even though it's tax-free for
regular tax purposes.
New write-off choices for corporations. This is an alternative tax
break for many corporations that are struggling and can't make good use of the
enhanced depreciation write-off that came with the Economic Stimulus Act of 2008
(signed into law in February of this year). To help a sagging economy, the act
allowed businesses to claim a bonus first-year depreciation deduction of 50
percent for most personal property and software acquired and placed in service
after 2007 and before 2009.
Under the new law, for assets purchased after Mar. 31, 2008, corporations
otherwise eligible for bonus depreciation may instead elect to claim certain
suspended research tax credits or certain minimum tax credits. This alternative
choice is highly specialized and will require detailed analysis of a
corporation's tax situation.
Property tax deduction for non-itemizers. For 2008 only, those who
take the standard deduction instead of itemizing deductions may claim an
additional standard deduction for state and local property taxes paid. The
deduction is limited to $1,000 for joint return and $500 for all other filers.
A tax credit—with a twist—for first-time homebuyers. The new law
gives first-time homebuyers a $7,500 tax credit. However, unlike other Federal
tax credits (for example, the child credit), the new credit must be paid back to
the Government ratably over a period of 15 years. So, as a practical matter, the
new credit for first-time homebuyers is the equivalent of an interest-free loan
from the Government. A number of terms and conditions must be met for the credit
to apply.
Please keep in mind that these are only highlights of some of the tax changes
in the new Housing Act. If you would like more details, please call our offices
at your earliest convenience.
If you have any questions or would like additional information regarding
this Tax Advisor, please contact one of our tax practice leaders: Jim Bowen at
330.255.2461 or Mike Hydell at 330.255.2456.
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