NEW
TAX ACT MAY HAVE SOMETHING FOR EVERYONE
The Housing Assistance Tax Act of 2008, now awaiting the President’s signature, has the potential to
bestow a tax benefit on nearly every individual. This article summarizes the key provisions so that you can use
them to your maximum advantage.
• New tax credit for first-time home buyers. This credit actually amounts to an interest-free loan from
the government, because unlike traditional tax credits, this one needs to be repaid. The credit is available to
individuals buying their principle residence for the first time, and is equal to the lesser of 10% of the purchase
price or $7,500. The credit phases out for individuals with adjusted gross incomes of between $75,000 and
$95,000, or between $150,000 and $170,000 for joint filers. It is available for homes purchased after April 8,
2008 and before July 9, 2009. An interesting wrinkle allows you to claim the credit for a home purchased
between January 1, 2009 and June 30, 2009 on your 2008 tax return, rather than having to wait until 2009.
Now, here’s the bad news – the credit needs to be repaid. Beginning in the tax year 2 years after the
credit was claimed (e.g., the 2010 return if the credit was claimed in 2008), the credit is recaptured as an
additional tax at the rate of 6-2/3% of the original credit. Therefore, the credit will be repaid over a period of 15
years. If the home is sold or ceases to qualify as the principle residence, the unpaid credits all become due in
that year. However, if the recapture exceeds the gain on sale, the credit recapture is capped at the amount of
the gain.
So, is the credit a good deal? It is, because the government is allowing you to keep, for a 2-year
period, taxes that you would otherwise owe. As long as you realize the need to make the repayment, and
increase your withholding or set aside funds to do so, using the tax credit makes good sense.
• New property tax deduction for non-itemizers. For 2008 only (although this may later be extended),
individuals who claim the standard deduction in lieu of itemizing can claim an additional tax deduction of the
lesser of state and local property taxes paid in 2008 or $500 ($1,000 for joint filers). For those of you who don’t
itemize, be sure to save your paid property tax receipts in order to document this deduction.
• Low-income housing credit and rehabilitation credit can offset AMT. The new Act allows the low-
income housing tax credit and the rehabilitation credit to offset the alternative minimum tax. Previously,
individuals subject to AMT received no benefit if they owned investments that produced these tax credits. Now,
for buildings placed in service after December 31, 2007, credits earned can offset the AMT tax. This provision
should spark renewed interest in real estate ventures that develop properties to generate these types of
credits for investors.
The Housing Assistance Tax Act of 2008, now awaiting the President’s signature, has the potential to
bestow a tax benefit on nearly every individual. This article summarizes the key provisions so that you can use
them to your maximum advantage.
• New tax credit for first-time home buyers. This credit actually amounts to an interest-free loan from
the government, because unlike traditional tax credits, this one needs to be repaid. The credit is available to
individuals buying their principle residence for the first time, and is equal to the lesser of 10% of the purchase
price or $7,500. The credit phases out for individuals with adjusted gross incomes of between $75,000 and
$95,000, or between $150,000 and $170,000 for joint filers. It is available for homes purchased after April 8,
2008 and before July 9, 2009. An interesting wrinkle allows you to claim the credit for a home purchased
between January 1, 2009 and June 30, 2009 on your 2008 tax return, rather than having to wait until 2009.
Now, here’s the bad news – the credit needs to be repaid. Beginning in the tax year 2 years after the
credit was claimed (e.g., the 2010 return if the credit was claimed in 2008), the credit is recaptured as an
additional tax at the rate of 6-2/3% of the original credit. Therefore, the credit will be repaid over a period of 15
years. If the home is sold or ceases to qualify as the principle residence, the unpaid credits all become due in
that year. However, if the recapture exceeds the gain on sale, the credit recapture is capped at the amount of
the gain.
So, is the credit a good deal? It is, because the government is allowing you to keep, for a 2-year
period, taxes that you would otherwise owe. As long as you realize the need to make the repayment, and
increase your withholding or set aside funds to do so, using the tax credit makes good sense.
• New property tax deduction for non-itemizers. For 2008 only (although this may later be extended),
individuals who claim the standard deduction in lieu of itemizing can claim an additional tax deduction of the
lesser of state and local property taxes paid in 2008 or $500 ($1,000 for joint filers). For those of you who don’t
itemize, be sure to save your paid property tax receipts in order to document this deduction.
• Low-income housing credit and rehabilitation credit can offset AMT. The new Act allows the low-
income housing tax credit and the rehabilitation credit to offset the alternative minimum tax. Previously,
individuals subject to AMT received no benefit if they owned investments that produced these tax credits. Now,
for buildings placed in service after December 31, 2007, credits earned can offset the AMT tax. This provision
should spark renewed interest in real estate ventures that develop properties to generate these types of
credits for investors.
Serving the Central
Pennsylvania area since 1981
Robert A.
Romako, CPA
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Robert A.
Romako, CPA 323 15th Street New Cumberland, PA 717.774.3047 |
