Earlier today, the President signed into law the Housing Assistance Tax Act of 2008. This bill has a number of provisions that should interest individual and business taxpayers:  

1. First Time Home buyer Tax Credit.

First time home buyers who purchase a home between April 9, 2008 and July 1, 2009, may receive a tax credit of the lesser of 10% of the purchase price or $7500 ($3750 for married taxpayers filing separately). The credit is subject to income limitations and will begin to phase out when adjusted gross income reaches $150K on a joint return and $75K on a single return.   The bad news about this credit is that it must be repaid in equal installments over 15 years. Repayments start two years after the year of purchase. If the residence is sold before repayment is complete, the balance of the credit must be repaid in the year of sale. In effect, it is more of the nature of an interest free loan rather than a tax credit.  

 2. New Rules for the $250K/$500K Exclusion on the Sale of Residence.  

Previously, as long as you owned and used a property as your principal residence for 2 of the 5 years preceding a sale, you could use your $250K/$500K gain exclusion to offset some or all of the gain from that sale. Now, the exclusion may not be used to offset gain for certain periods where the property was not used as a principal residence.  The new rule prevents use of the gain exclusion to offset gain for any period after 2008 during which the residence was used as a vacation home or a rental before it was used as a personal residence. Gain for that period is determined on a pro rata basis rather than on the basis of an actual appraisal.  

What this means is that, after 2008,  it is no longer possible to move into your rental or vacation home for two years, sell it, and take a $250K/$500K gain exclusion.

In contrast, if you move out of your primary residence, rent it for three years, and then sell it, you will still be able to use the gain exclusion. In short, to use the gain exclusion, use of the property as a primary residence must come first.   Because gain for the period of rental use must be determined on a pro rata basis, even if you have an actual loss for that period, you may still have an amount of gain that cannot be offset by the $250K/$500K exclusion.  

 3. 2008 Property Tax Deduction for Non-Itemizers.

 For 2008 only, those who do not itemize their deductions are allowed a deduction for properly taxes paid up to $500 ($1000 for joint filers).  

 4. Low Income Housing and Rehab Credits No Longer Subject to AMT Limits.  

In the past, the Low Income Housing and Rehab credits were subject to the limits of alternative minimum tax and could not be used to reduce regular taxable income below alternative minimum taxable income. Those limits will no longer apply. At present, it appears that this rule will only apply in the case of credits generated by property placed in service after 2007. That means that carryover credits will still be subject to AMT limitations. However, that may be subject to change once final regulations are drafted.  

5. Merchant Payment Card Reporting.  

Banks and other processors of credit and debit card payments for merchants and other sellers will now be required to report annual gross payment card receipts to the IRS. For example, EBay sellers who process payments through PayPal will now find that the total amount of their receipts will be reported to the IRS. This takes effect for sales after January 1, 2011. What this means is that, if you sell items and accept credit or debit cards for payment, you will want to be sure that the total debit/credit card sales reported on your tax return ties out to the amounts that have been reported by the bank or company that processes those payments.  

Other Recent Tax Legislation:  

1. Change in the Extended Due Date for Partnership and Trust Tax Returns   Beginning with 2008 returns, partnership and trust tax returns will have a shorter extension period. With an extension, the final due date for partnership and trust returns will be September 15.. This should mean that those of you who typically must wait to receive Form K-1 before you can file your individual income tax returns should receive your K-1's  no later than a month before the October 15 due date for your individual income tax returns. That should make all of our lives a bit easier!   For partnerships, the new rule means that, with an extension, pension contributions must now be funded by September 15.     This has been brief summary of some of the basic provisions of the recent tax legislation. Please understand that once legislation is passed, it is up to the IRS to draft regulations that specify how the rules will be implemented. That means that changes, modifications and clarifications of the new rules are likely.

Victoria Wells

Broker Associate, 415-710-4090 vawells@comcast.net

Http://www.marinbesthomes.com