First-time Homebuyer Credit

The housing bill gives first-time homebuyers a new - and temporary - tax credit equal to 10 percent of the purchase price of the home up to $7,500 ($3,750 for married individuals filing separately). The credit is only available for home purchases made on or after April 9, 2008 and before July 1, 2009. The first-time homebuyer credit must be repaid in equal installments over the course of 15 years, which makes the credit more like an interest-free loan from the government for most qualifying homeowners.

The credit phases-out for married couples with modified adjusted gross income (AGI) between $150,000 and $170,000, and for single taxpayers with modified AGI between $75,000 and $95,000.  Also, to be eligible to claim the credit, an individual (or his or her spouse, significant other or otherwise a co-owner) must not have had any type of ownership interest in a principal residence during the three-year period before the date that the principal residence, for which the credit is to be taken, is purchased.

Standard real property deduction for non-itemizers

Currently law only allows individuals who itemize deductions to deduct real property taxes imposed by state and local governments. The new housing bill gives taxpayers who claim the standard deduction (non-itemizers) a limited deduction for state and local real property taxes. The maximum deduction that can be taken is $500 ($1,000 for joint filers) or the amount of real property taxes paid during the year, which ever is less. Since the new deduction is part of the standard deduction, it is not an above-the-line deduction that lowers a taxpayer's adjusted gross income. The new housing bill also significantly expands certain tax programs aimed at providing affordable housing for low- and moderate-income individuals.

Special AMT rules. The new law also allows the LIHTC to be taken against the alternative minimum tax (AMT), permits the LIHTC and the rehabilitation tax credit to be used to offset the AMT and ensures that interest on tax-exempt housing bonds is not subject to the AMT.

AMT and R&D credits. In an important tax break for many businesses, the housing bill allows companies in a loss position to use accumulated AMT and research and development (R&D) credits early, and to make new investments in lieu of the special bonus depreciation provided in the Economic Stimulus Act of 2008. The accumulated credits are increased by 20 percent of the excess bonus depreciation (over straight-line depreciation) that could otherwise be claimed.

Military personnel. The new law also temporarily enhances certain protections against foreclosure under the Service members Civil Relief Act. At the request of a service member, mortgage lenders must reduce the interest rate to no more than 6 percent per year during the period of active military service and recalculate the payments to reflect the lower rate.

Reduced home sale exclusion. Gain from the sale of a principal residence will no longer be excluded from gross income under the Code Sec. 121 home sale exclusion for periods that the home was not used as the principal residence ("non-qualifying use"). This new income inclusion rule applies to home sales after December 31, 2008 and, under a generous transition rule, is based only on nonqualified use periods that begin on or after January 1, 2009.

The rule prevents use of Code Sec. 121's exclusion of gain from the sale of a principal residence of up to $250,000 ($500,000 for joint filers) for appreciation attributable to periods after 2008 during which a residence was used as a vacation home or as rental property before its use as the principal residence.

The tax provisions in the Housing Assistance Act of 2008 make significant tax changes. If you have any questions about how this sweeping new law may affect your tax situation, please feel free to call this office.