The Housing Assistance Tax Act includes tax breaks for homeowners and new home buyers. There are also new restrictions on existing breaks and new rules for reporting the credit card transactions of merchants, which were added as “offsets” to help pay for the new credits and deductions. Here are some of the highlights:
FIRST–TIME HOMEBUYER TAX CREDIT
The “first-time” homebuyer tax credit allows new home buyers a credit of up to $7,500 ($3,750 for married taxpayers who file separately), based on a percentage (10%) of the purchase price of the home. It is a refundable credit, which means that it does not merely offset tax liability like most credits, but will be paid out as a refund to taxpayers who owe no taxes at all. The downside is that any credit received must be paid back to the government over fifteen years, or sooner if the home is sold; if the home is sold, the amount received as credit must be returned up to the amount of gain.
This “interest-free loan” is expected to be an incentive for new home buyers to jump into the housing market and a boon to many cash-strapped new home owners. The new credit begins to phase out at adjusted gross incomes of $75,000 ($150,000 for married filers), and it is eliminated completely at $95,000 ($170,000). It is available for homes purchased on or after April 9, 2008 and before July 1, 2009.
For this credit, you are considered a “first time” home buyer if you did not own (or partly own) a principal residence during the three year period prior to the purchase of the new home.
PROPERTY TAX DEDUCTION FOR NON-ITEMIZERS
Taxpayers who do not itemize will be allowed a deduction for state and local real property taxes on their 2008 tax returns. Qualifying taxpayers will have their standard deduction increased by the amount of real property taxes paid during the year or $500 ($1,000 for married filers), whichever is less. This deduction is available for 2008 only, so it may be over before it starts for those who don’t stay current on tax law changes. Homeowners with little or no mortgage interest are the taxpayers most likely to benefit from this new deduction.
NEW RESTRICTIONS ON THE “HOME SALE EXCLUSION”
The IRS is closing the loophole that allows owners of multiple homes to convert vacation homes and other investment properties to their primary residence in order to exclude the profits from their sales from taxation. Beginning in 2009, only gains attributable to periods that a property is used as a primary residence will be excludable from income, and gains that are attributable to “nonqualified” use will be taxable. The amount of nonexcludable gain will be determined using the following calculation:
GAIN ON SALE X PERIOD OF NONQUALIFIED USE/PERIOD OF OWNERSHIP
Any nonqualified use that occurs prior to January 1st, 2009, which is the law’s start date, will not be counted in the calculation.
NEW REQUIREMENTS FOR CREDIT CARD REPORTING
Banks and other processors of credit and debit card transactions, such as Pay Pal, will be required to report the annual gross payment receipts of merchants to the IRS. This is effective for sales taking place on or after January 1, 2011. There is an exception for merchants with receipts of less than $20,000 or fewer than 200 transactions. The government expects to raise more than 9.5 billion in revenue as a result of this new requirement.
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