Tax News E-Alert

August, 2008

Housing Assistance Tax Act of 2008

H.R. 3221, the “American Housing Rescue and Foreclosure Prevention Act of 2008,” was signed into law by the President on July 30, 2008.  The legislation responds directly to the current crisis while providing the tools to prevent a repeat of these problems.  It also includes “Housing Assistance Tax Act of 2008” carrying a host of tax changes.

The following are the main tax provisions included in H.R. 3221:

New Tax Credit or for First-Time Homebuyers

For qualifying home purchases after Apr. 8, 2008 and before July 9, 2009, the Act gives eligible first-time homebuyers a refundable tax credit equal to the lesser of 10% of the purchase price of a principal residence or $7,500.

The credit, which is generally allowed for the tax year in which the principal residence is bought, phases out for individual taxpayers with modified adjusted gross income (MAGI) between $75,000 and $95,000 ($150,000-$170,000 for joint filers) for the year of purchase.

A taxpayer is considered a first-time homebuyer if he (or spouse, if married) had no present ownership interest in a principal residence in the U.S. during the 3-year period before the purchase of the home to which the credit applies.

The credit for new homebuyers is recaptured ratably over fifteen years, with no interest charge, beginning with the second tax year after the tax year in which the home is purchased.  For each tax year of the 15-year recapture period, the credit is recaptured as an additional income tax amount equal to 6 2/3% of the amount of the credit.

In other words, the credit for new homebuyers is, as a practical matter, the equivalent of a long-term interest-free loan from the government.

Eligible first-time homebuyers who purchase a principal residence after Dec. 31, 2008, and before July 1, 2009, may elect to treat the purchase as made on Dec. 31, 2008.

New Property Tax Deduction for Non-Itemizers

For tax years beginning in 2008, the Act permits taxpayers who claim the standard deduction instead of itemizing deductions to claim an additional standard deduction for State and local property taxes paid.  The deduction can't exceed the lesser of State and local property taxes actually paid or $500 ($1,000 for joint return filers).

Reduced Homesale Exclusion for Nonqualified Use Periods

For sales and exchanges after Dec. 31, 2008, the homesale exclusion won't apply to the extent gain from the sale or exchange of a principal residence is allocated to periods of nonqualified use.  Generally, nonqualified use is any period (other than the portion of any period before Jan. 1, 2009) during which the property is not used as the principal residence of the taxpayer or spouse.

Low-Income Housing Credit and Rehab Credit May Offset AMT

Interest Earned on Certain Mortgage Bonds is No Longer Treated as a Private Activity Preference for AMT Purposes

Election to Accelerate AMT & Research Credits Instead of Bonus Depreciation

For tax years ending after Mar. 31, 2008, the Act provides that corporations otherwise eligible for bonus depreciation may instead elect to claim additional research or minimum tax credits for eligible qualified property placed in service after Mar. 31, 2008.

Information Reporting of Merchants' Credit Card and Third-Party Network Sales—After 2010

Real Estate Investment Trust (REIT) Rules Liberalized, Particularly with Regard to Foreign Activities

Modified Estimated Tax Payment Rules for Large Corporations

The Act makes two changes in the estimated tax payment rules for large corporations (those with assets of $1 billion or more):

(1) It repeals the changes made by prior legislation for required installments of estimated tax for July, August, and September of 2012.  Thus, large corporations will make regular estimated tax payments for these installments based on their income tax liability.

(2) It increases the required installments of estimated tax for July, August, and September of 2013, as in effect on the enactment date, by 16.75%, with corresponding reductions in the next required payment.

Please feel free to contact me at 310-697-1501 or rwelling@rwac.com if you have any questions.

Best regards,

Richard Welling

Richard Welling & Co., LLP

3625 Del Amo Blvd., Suite 290

Torrance, CA 90503

(310) 697-1500

www.rwac.com

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