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Taxpayers Need to Strategize Major Tax Provisions in New Housing Assistance Bill
Senior Tax Analyst from the Tax & Accounting business of Thomson Reuters explains the ups and downs of New Housing Assistance Bill for individuals
While so many Americans are in a panic about the security of their mortgages and banks, the House passed the Housing Assistance Bill on July 23, 2008, and a preliminary procedural vote in the Senate passed by a large margin on July 25 and is expected to pass by a similar margin when the scheduled final vote is taken in the Senate on July 26. The Administration indicated that the President has dropped his opposition to the bill and will sign it into law.
“Not only will this Bill address ‘the mortgage panic factor,’ but it will also provide three quite tangible new tax provisions that affect U.S. homeowners,” says Bob D. Scharin, Senior Tax Analyst from the Tax & Accounting business of Thomson Reuters.
According to Scharin, new tax landscape from the Housing Assistance Bill of 2008 includes:
· First-time homebuyers get a tax credit of up to $7,500. Comments Scharin of Thomson Reuters: “This provision contains some catches: The credit is more of an interest-free loan than a complete giveaway; in general, taxpayers will have to pay back the credit they claim over 15 years. Also income limitations restrict eligibility.”
· On the other hand, you can be considered a first-time homebuyer even if you previously owned a home in the not-so-recent past, according to Scharin, and a home purchased in the first half of 2009 can get you a tax credit on your 2008 return.
· Good news for homeowners: your standard deduction grows by up to $500 ($1,000 for joint return filers). Scharin suggests that you keep in mind, “The additional standard deduction for state and local property taxes won’t help those with big mortgage interest payments and high property taxes because they will be itemizing in any event. On the other hand, it should be useful to those with small mortgages and low state and local tax payments. Among the winners are retirees who have paid off their mortgages and already get a larger standard deduction for being at least age 65 (making them likely to claim the standard deduction).”
· A crackdown applies to taxpayers who plan to convert their vacation home to their principal residence and then avoid tax on gain by using the up to $250,000 ($500,000 for joint return filers) home-sale exclusion. Says Scharin of Thomson Reuters, “Quick action can provide an escape hatch. The crackdown takes effect in 2009, and taxpayers who turn their vacation home into their principal residence before the end of 2008 can avoid the impact of the new rule.“
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