The federal tax changes in The Housing Act (or to give it its proper title: The American Housing Rescue and Foreclosure Act of 2008), are intended to staunch the flow of housing foreclosures, but some changes could sting certain homeowners. You may have suspected that the tax credit may not be the break you hoped it might be, and you could be right. It’s wise to ask your tax professional to review your situation and tax strategy to make sure you know how these new “breaks” might help, overlook, or even hurt you.
The new tax credit equals the smaller sum of either 10 percent of the cost of the home or $7,500.00 for a qualified couple. If you are married and file separately you qualify for $3,750.00 (or half the $7,500.00). The credit can be used to offset your federal income taxes. There are several stipulations that determine eligibility:
Not Free Money
- The home must be your principal residence and be purchased after April 8, 2008 but before July 1, 2009.
- If you are building a new home, your move-in date is considered to be the purchase date.
- You are not eligible if you owned a principal residence in the U.S. in the three-year period prior to the new purchase. Your spouse must meet this requirement, too.
- You are not eligible if you buy a home from a family member, including your spouse.
- Buyers that are considered to be in a “higher income” bracket may be eligible for a reduced tax credit (phased out according to income) or not eligible at all. Joint filers who have an adjusted gross income (AGI) over $170,000.00 are ineligible. A phased-out rate of tax credit applies –on a sliding scale—to people who file jointly with an AGI over $150,000.00. A single person, or a married individual who files separately, hits the phase out range at $75,000.00 and is not eligible with AGI of $95,000.00
If you meet the eligibility criteria, you are still not home free. The tax credit has to be listed on your Form 1040 and repaid over a 15 year time span beginning with the second year after you make the initial claim. So it really is a loan to be repaid without interest rather than a tax credit.
Property Tax Break for Non-Itemizers
For 2008, a single person who doesn’t itemize their tax return can include up to $500 of state and local real estate taxes to the standard deduction amount. This also applies to individuals who file returns separately from your spouse. Married couples who file their taxes jointly are eligible for up to $1,000.00.
There are further ramifications for people who converted a vacation home or rental property into their principle residence. If this is an issue for you, it is most likely you’ll see some of the tax advantages you previously had dwindle. Your professional tax consultant can advise you on the various changes to the tax code and how they affect your specific situation.