On July 26, 2008, Congress passed the American Housing Rescue and Foreclosure Prevention Act of 2008. President Bush signed the measure into law on July 30.The bill is designed to:
- expand and improve the low-income housing tax credit,
- increases volume limits on housing bonds to finance low-income rental housing and first-time homebuyers
- enable cities and towns to more efficiently use tax-exempt bonds in the effort to develop affordable rental housing.
For Homeowners:First-time homebuyer tax credit to assist in making a down payment on a home. This would provide individuals and families with a refundable credit (equivalent to an interest-free loan) of 10% of the purchase price of their home (up to $7,500). Taxpayers would be required to repay any amount received under this provision to the government over 15 years in equal installments. The credit is phased out for taxpayers with adjusted gross income in excess of $75,000 individuals ($150,000 MFJ).
A few further specifics: A 'first-time' homebuyer is one who has not owned a home in the US as their principal residence in the past three years, and this credit will not apply for nonresident aliens, homes purchased and sold in the same year, those inherited or gifted, or if purchased from relatives. If married, both spouses must meet the nonownership test even if filing MFS. The purchase period for this credit is April 9, 2008 through June 30, 2009, so those taxpayers buying in the first half of 2009 can expedite the credit and claim it on 2008 (but calculated on 2008 income and not until the closing occurs). The loan would be forgiven upon death of the taxpayer, or in excess of taxable gain if the house is sold.
What this means is that first-time homebuyers would get an additional refund even if with no tax liability (ie, refundable), but have to pay it back over 15 years. Tax returns for the next 15 years would have to be filed assessing a $500 tax as a way of repaying the loan. But not bad, getting a interest-free loan to help out with all those home expenses.
UPDATE: With the signing of AARA, homes purchased from Jan 1 to Nov 30, 2009 may qualify for an $8,000 refundable credit, which does not need to be paid back if the home is the principal residence for at least 3 years. Taxpayers who used the original $7,500 credit for a home purchased in 2009 (through June 30) can amend and claim the more advantageous credit.
UPDATE: Worker, Homeownership, and Business Assistance Act of 2009
The credit is extended into 2010, if a written contract exists before May 1, 2010 and the closing date is before July 1, 2010, and the income phaseout increases. The taxpayer can also opt to amend the previous year's return to possibly expedite the credit (but must use that year's income to determine any phaseout).
In addition to first-time homebuyers, as of Nov 7, 2009 now eligible are homeowners who have maintained a principal residence for five consecutive years out of the eight previous years up to the date of the new purchase. The credit in this situation is still 10% of the purchase price, but up to a maximum of $6,500 (or $3,250 MFS; even if filing as such, both taxpayers must be prior homeowners.) You do not have to sell the old home to qualify, but the new home will have to be the principal residence.
The increased income phaseout for this extension of the credit is $125,000 -$145,000 individuals ($225,000 - $245,000 MFJ).
Additional standard deduction for real property taxes to help homeowners who claim the standard deduction by allowing them to claim an additional standard deduction of up to $500 ($1,000 for joint filers) for state/local real property taxes. This provision has now been extended through 2009 (Tax Extender Act of 2009).
What this means is that homeowners who for some reason don't have enough to itemize, (a great example is an elderly taxpayer who has paid off their mortgage and only has real estate tax, moderate charities, low out-of-pocket medical expenses, and therefore would not itemize) can still benefit by getting an extra deduction for their real estate tax.
(AARA information is partly based on information from http://www.taxalmanac.org and is licensed subject to the terms posted at http://www.taxalmanac.org. Explanation of these laws has been modified. Intuit Inc. is not responsible for this information. Taxaway is. That's why you can actually understand it! It has been converted from Governmentish to English to explain what's going on. And of course, consult www.irs.gov for complete details on this and other tax laws.)