Housing & Economic Recovery Act of 2008

Author: Thomas R. Vander Hulst
Date: 03/09/2009

While there seems to be little to be excited about regarding the economy as we get further into 2009, there are a few bright spots in the Housing & Economic Recovery Act of 2008 that might help raise your bottom line:
The first-time homebuyer tax credit is essentially an interest-free loan from the government. Taxpayers who take the credit, which equals 10% of the purchase price (up to $7,500 for single individuals and married couples filing jointly; $3,750 for married individuals filing separate returns) must repay the credit and have 15 years to do so.
The property deduction for non-itemizers is a significantly less complicated deduction that gives non-itemizers a limited deduction for state and local property taxes by increasing the amount of their standard deduction by the lesser of the amount of property taxes paid or $500 ($1,000 for a married couple filing jointly).
Borrowers who are trying to refinance mortgages that offered low teaser rates, but whose rates have now skyrocketed, may be helped by the $11 billion more in mortgage revenue bonds. Qualified subprime borrowers may be able to tap into these bonds to refinance into a loan with more favorable rates.
Businesses are encouraged to increase investment by the bonus depreciation offered by the Act. However, companies in a loss position cannot take advantage of bonus depreciation because they do not have any taxable income against which to take the deduction. The Act allows corporations to use accumulated alternative minimum tax credits as well as R & D tax credits to make investments that would qualify for bonus depreciation, if the taxpayers were profitable.
The home sale exclusion is one of the most popular tax breaks in the Tax Code. Married couples filing jointly can exclude up to $500,000 in gain (single individuals up to $250,000). Before the new law, if a second home became a principal residence, after 2 years the owner could sell it and exclude up to $250,000 in gain from their income or up to $500,000 for couples. The new law prorates the exclusion between the time that a home is used as a principal residence and the total length of ownership. As good news to those who have owned property for a while and have seen it appreciate, non-qualifying use before the Jan. 1, 2009 effective date of the provision is not used in the calculation; neither are periods after a qualified use of the property or temporary absences of less than 2 years.
Seller-funded down-payment assistance programs had provided cash assistance to homebuyers who could not afford to make the minimum down payment or pay the mortgage closing costs, but these programs have been criticized for helping to inflate home prices. The Act bans seller-funded down-payment assistance programs.
The Act includes many provisions to help military personnel on active duty and help veterans avoid foreclosure.
Tax-exempt housing bonds and the low-income housing tax credit help fund the construction of affordable housing units, but the rules are extremely technical. The Act simplifies these rules and makes other positive changes including tax breaks for taxpayers in the Gulf Opportunity Zone.
The Act completely overhauls government regulation of Fannie Mae and Freddie Mac, creating a new regulator for these entities, which own or guarantee nearly half of all U.S. mortgages. Additionally, the new law sets minimum standards for mortgage brokers, strengthens the Truth in Lending Act and funds foreclosure prevention counseling.
If you have any questions about how the new law may affect you, feel free to contact one of our tax law attorneys.