So far this year, we’ve had the Economic Stimulus Bill, the Foreclosure Act and now we have the Housing Assistance Act. The bills are flying fast and furious as Congress tries to shore up an ailing economy, bolster the housing market and still put money in the coffers. And through it all the IRS is getting tougher and bigger.
The latest bill, the Housing Assistance Tax Act of 2008 (HATA) is signed and part of law. Here are the highlights:
Treasury has the authority to rescue Fannie Mae and Freddie Mac. As reported by the New York Times, this privatizes the profits and socializes risk and loss. That alone can be a long discussion, but there is more.
We got another governmental agency! (When in doubt, form a new agency) The Federal Housing FInance Agency will have power over Fannie, Freddie and the 12 Federal Home Loan Banks.
There are four major tax cuts:
- First-time home buyers will be entitled to a refundable tax credit for 10 percent of the purchase price of a principal residence, up to a maximum of $7,500. The credit begins to phase out for taxpayers with income over $75,000 ($150,000 for a joint return) and is available for purchases after April 9 and before July 1, 2009. It is not really a credit, more like a loan, because the credit must be repaid in equal installments over 15 years with no interest
- Individual taxpayers who do not itemize their deductions but claim the standard deduction will be allowed an additional deduction from gross income for state and local real property taxes. The deduction will equal the lesser of the amount of real property taxes paid or $500 ($1,000 for a married couple filing jointly). This extra deduction for non-itemizers is available only in 2008.
- After Hurricane Katrina hit the Gulf Coast, Congress passed The Gulf Opportunity (GO) Zone Act of 2005 which contained a number of tax incentives to help individuals and businesses rebuild. HATA enhances and extends some of those incentives. Taxpayers in affected GO Zone areas may amend prior returns to take into account receipt of hurricane-related recovery grants, and the start-construction deadline for certain property eligible for bonus depreciation in the GO Zone is extended.
- HATA temporarily increases the low-income housing credit. Each state receives an annual allocation of credits. The current cap on state allocations is $2 per resident. The new law raises the limit to $2.20 per resident. This increase applies only in 2008 and 2009. The new law also temporally maintains the credit at nine percent of nonsubsidized new construction.
There are three major tax increases:
- Beginning in the year 2011, banks and other credit card payment processors have to report gross annual receipts received through credit- and debit-card transactions for businesses with merchant accounts to the Internal Revenue Service.
This includes online processors like PayPal, who will have to issue 1099’s to vendors receiving remittances greater than $20,000 (NOTE: Some media is reporting this as $10,000, but our reading says it’s $20,000) This is expected to increase compliance by merchants and, thus, raise revenue.
- Under prior law, a homeowner could exclude up to $250,000 in gains (or $500,000 for joint filers) on the sale of a principal residence as long as the homeowner owned and lived in the house for at least two years out of the five years ending on the date of sale. HATA changes that. Now, any gains will need to be allocated based on usage. Only gains allocated to time spent living in the property as a primary residence, called qualified use, will qualify for the tax exclusion. This new provision apples to home sales after Dec. 31; and as a transition rule, the nonqualified use periods that count begin on or after Jan. 1, 2009.
- The implementation of the worldwide allocation of interest is delayed until 2011. This provision was part of the American Jobs Creation Act of 2004.