Miranda Tsotsoria
Sales Associate
New Jersey New Jersey First Time Real Estate Buyers who were awaiting new Housing Assistance Act of 2008, finally passed by both houses of Congress and signed into law by President Bush this week, Could face Problems with New Housing Bill. The bill contains some not-to-pleasant surprises for the unwary taxpayer according to an article by Eva Rosenberg published this week in MarketWatch.
According to Rosenberg, the bill, which is intended to assist homeowners on the verge of losing their homes, "is likely to cause more upset than calm"
She outlines several areas where the tax law was changed along with housing law and warns that there are pitfalls with each.
The bill grants a tax credit of up to $7,500 to new homeowners or potential homebuyers actively conducting property search. Eligible recipients, mostly buyers are those who have not owned a primary residence for three years (although they may own a vacation property or a time share). The tax credit represents an amount up to 10 percent of the purchase price and couples in commuting marriages can each purchase a home although they have to share the credit.
But the credit is not a gift from the government. It is actually a loan and must be repaid in 15 years, starting the second year after the home purchase. Granted it is an interest free loan but if the home is sold in less than 15 years the balance must be repaid immediately except in the case of the death of the homeowner or with some exceptions for divorce or other emergency situations.
The main downside to this provision is that it will require filing a tax return regardless of the status of the homeowner. The credit is added to any refund due the taxpayer and loan payments are deducted from refunds or added to the tax obligation. The credit and the obligation to file a refund to collect and repay it could affect seniors living on fixed incomes and Social Security and may require using a professional tax preparation service. Taxpayers who neglect repaying the "loan" will be subject to all of the usual IRS penalties for non-filing and non-payment.
There is also a change in the standard deduction for real property taxes. Couples may now deduct taxes up to $1,000 ($500 for singles) for "qualified" taxes, i.e. those that could have been deducted on Schedule A by those taxpayers who can itemize. This provision is intended to help those who cannot itemize, but if the deduction is taken based on the tax credit it cannot be claimed on Schedule C, the home/office provision or any other schedule. Rosenberg does not specify whether the taxpayer can pick where to apply the deduction.
Miranda Tsotsoria
www.mirandatsotsoria.com
