Housing Act contains tax provisions.

• Author: Nevius, Alistair M.

On July 30, 2008, the president signed into law the Housing Assistance Tax Act of 2008, P.L. 110-289. Although most of the act deals with larger housing slump issues, such as funding for Federal Housing Administration loans and backing for Fannie Mae and Freddie Mac, it contains tax provisions affecting homeowners and first-time homebuyers, as well as changes to the rules governing the low-income housing credit, tax-exempt bonds, and the alternative minimum tax (AMT). It also imposes a new reporting requirement on financial institutions that process credit card transactions.

2008 Property Tax Standard Deduction

The act allows nonitemizing homeowners to take an additional standard deduction of up to $500 ($1,000 for married taxpayers filing jointly). The additional standard deduction is for state and local real property taxes (and is limited to the amount of such taxes that would be deductible by the taxpayer if he or she itemized, up to $500).

The deduction applies only to tax years beginning in 2008. The real property tax standard deduction is not available if the taxpayer has already deducted the taxes as a trade or business expense under Sec. 62(a).

Since most homeowners who are paying off mortgages itemize in order to take advantage of the Sec. 163(h)(3) mortgage interest deduction, this provision is likely to benefit homeowners who own their homes outright.

Homebuyers' Credit

The act gives first-time homebuyers a refundable credit of 10% of the purchase price of the home, up to $7,500 ($3,750 for married taxpayers filing separately) (Sec. 36). The credit phases out for homebuyers with modified adjusted gross income (AGI) between $75,000 and $95,000 (between $150,000 and $170,000 for joint fliers). The credit applies for both regular tax and AMT purposes.

The credit works like an interest-free loan because, if the credit is taken, it will be recaptured over the next 15 years, starting in the second tax year after the home is purchased. If the home is sold before the end of the 15-year recapture period, the outstanding amount of the credit is recaptured at that time (but is limited to the amount of gain from the sale).

To be eligible, a taxpayer must be a first-time homebuyer, defined as someone who has not had a present ownership interest in a principal residence during the three-year period ending on the date the principal residence is purchased (Sec. 36(c)(1)). Also, the taxpayer must not have purchased the residence from a related...