Housing Bill Offers Tax Opportunities and Traps
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On Wednesday, July 30, President Bush signed the "Housing and Economic Recovery Act of 2008." While the bill focuses on protecting lenders and preventing foreclosures, there are three other tax provisions worth noting.
The new law gives "first-time homebuyers" (those who have not owned a principal residence within three years) a refundable tax "credit" equal to 10% of the home's purchase price up to $7,500 ($3,750 for married individuals filing separately). The "credit" is available for purchases from April 9, 2008 through June 30, 2009. But - if you take the "credit," you have to repay it, in equal installments, over the next 15 years. So it's really just an interest-free loan, not a true tax credit. It phases out for single taxpayers with "modified adjusted gross incomes" between $75,000 and $95,000 ($150,000 to $170,000 for married couples filing jointly).
The law also creates a temporary deduction, for 2008 only, for property taxes for non-itemizers. The deduction is limited to $500 ($1,000 for married couples filing jointly).
Finally, the law eliminates tax breaks on the sale of your principal residence for periods you don't use it as your principal residence. Under old law, you could take a rental property or vacation home, use it for at least two years as your primary residence, then sell it and exclude up to $250,000 of gain from your income ($500,000 for married couples filing jointly). This held true even if most of the gain occurred while you were renting the property or using it as a vacation home. The new law taxes you on any gain after 2008 attributable to periods you dont use it as your primary residence.
The new laws governing the first-time homebuyer credit and reduced home sale exclusion can be confusing. If you have any questions be sure to call us at 760-747-4605.
