More tax legislation: 2008 Housing Assistance Tax Act: pluses and minuses.

• Author: Josephs, Stuart R.
• Position: Fed Tax

The following are selected highlights of the 2008 Housing Assistance Tax Act (P.L. 110-289), signed into law July 30, 2008.

First-time Homebuyer Credit

Under this new law, an individual taxpayer who is a first-time homebuyer of a principal residence in the United States is allowed a refundable tax credit equal to the lesser of:

* $7,500 ($3,750 for a married individual filing separately); or

* 10 percent of the residence's purchase price.

Generally, this credit is allowed for the tax year in which the taxpayer purchases the home. The credit is phased out for individuals with year-of-purchase modified adjusted gross income (AGI) between $75,000 and $95,000, or between $150,000 and $170,000 for joint filers. Modified AGI is AGI increased by any amount excluded from gross income under IRC Secs. 911, 931 or 933.

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An individual is considered a first-time homebuyer if he or she (and if married, his or her spouse) had no present ownership interest in a principal residence in the U.S. during the three-year period ending on the date of the purchase of the principal residence to which this credit applies.

The credit is not allowed if:

1. The residence is financed from the proceeds of tax-exempt mortgage revenue bonds;

2. The taxpayer is a nonresident alien;

3. The taxpayer disposes of the residence or the residence ceases to be the principal residence of the taxpayer (and, if married, the taxpayer's spouse) before the close of a tax year for which the credit otherwise would be allowable; or

4. The District of Columbia's homebuyer credit is allowable for the tax year the residence is purchased or for any prior tax year.

   For purposes of this credit, the term "purchase" means any acquisition, but only if:

1. The property is not acquired from a related person; and

2. The property's basis in the acquiror's hands is not determined:

   * In whole or in part by reference to the property's adjusted basis in the transferor's hands; or

   * Under Sec. 1014(a), relating to property acquired from a decedent.

   For purposes of this credit, persons are treated as "related" if their relationship would result in the disallowance of losses under Secs. 267 or 707(b).

   However, in applying Sec. 267(b) and (c) for this purpose, Sec. 267(c)(4) is treated as providing that an individual's family shall include only his or her spouse, ancestors and lineal descendants--thus excluding siblings.

   The credit is recaptured ratably over 15 years, without any interest...