With all of the attention on the Economic Stabilization Act, many of the “Main Street” provisions of the Housing
Act passed in August have received less notice:
H.R. 3221, the “American Housing Rescue and Foreclosure Prevention Act of 2008”—the Housing Act—was signed into law by the President on July 30, 2008. This sweeping measure is designed to shore up the ailing housing market as well as tighten lending practices and reform financial institutions associated with that market. It also contains a number of tax changes, including tax breaks for homebuyers and homeowners, relaxed requirements for tax-exempt bonds, eased AMT rules, tax changes for businesses, as well as highly specialized changes affecting low-income housing and special investment vehicles called Real Estate Investment Trusts (REITs).
Property tax deduction for non-itemizers. For 2008 only, those who take the standard deduction instead of itemizing deductions may claim an additional standard deduction for State and local property taxes paid (but taxes written off as business deductions don’t count). The deduction is $1,000 for joint return and $500 for all other filers (or actual property tax paid, if that’s less).
Reduced homesale exclusion for some sellers. After 2008, some homesellers who don’t use their properties as principal residences for their entire ownership period may wind up paying more of a tax bill than they would under current rules (or pay tax when none would be owed currently). The tax break affected is the homesale exclusion, which generally allows up to $250,000 of homesale profit to be tax-free if a home was owned and used by the seller as a principal residence (i.e., main home) for at least 2 of the 5 years before the sale. In general, the tax-free break can only be used once every 2 years. The tax-free profit amount is up to $500,000 for married taxpayers filing jointly for the year of sale if several conditions are met. A reduced maximum exclusion may apply to taxpayers who must sell their principal residence because of health or employment changes (or certain unforeseen circumstances) and as a result (1) fail the 2-out-of-5-year ownership and use rule, or (2) previously used the homesale exclusion within two years.
For sales after 2008, gain potentially eligible for the homesale exclusion will be reduced proportionately for the period of time a home wasn’t used as a principal residence. The prime example is a vacation home that is turned into a principal residence by its owners, but the new rule also can hit individuals who use a property as a main home for a while, rent it out for a period of time, and then move back in. There are, however, a number of exceptions. For starters, pre-2009 periods of non-principal-residence use don’t count, and neither do periods of temporary absence totaling no more than 2 years due to health or employment changes (or certain unforeseen circumstances), or up to 10 years of absence for qualifying members of the military or certain government employees. Finally, non-principal-residence use doesn’t count if it occurs (1) in the five years preceding the sale, but (2) after you permanently stop using the home as a main home.
Information reporting of merchants’ credit card transactions. After 2010, banks will be required to file an information return with the IRS reporting the total dollar amount of credit and debit card payments a merchant receives during the year, along with the merchant’s name, address, and taxpayer identification number (TIN). Similar reporting also will be required for third party network transactions (e.g., those facilitating online sales), with exceptions for certain small merchants. The new information reporting requirement is designed to boost the tax compliance rate of merchants.