Tax implications of the 2008 Housing Rescue and Foreclosure Prevention Act

The following information is provided by a Licensed Tax Professional in the State of Wisconsin. Any information included in this blog is not tax or legal advice and should not be construed as such.

The passing of the Housing Rescue and Foreclosure Prevention Act has had a large impact so far on my business. To simplify confusion and educate others I have asked a colleague to briefly explain the tax implications of this act, and what it means to homeowners and First Time Home Buyers.

Many know the Housing Act created a large tax incentive for First Time Home Buyers. The Government defines a First Time Home Buyer as "someone who has not owned a principal residence in the United States during the three year period that ends on the purchase date."

"The Housing Act creates a temporary new federal income tax credit. The maximum amount of this new credit is the lesser of (1) 10% of the purchase price of a principal residence or (2) $7,500 (or $3,750 for those who use married filing separate status). The credit is refundable, which means it can be used to offset your entire federal income tax liability with any remaining credit refunded to you."

"The credit is generally available for principal residence purchases after 4/8/08 and before 7/1/2009. For a newly constructed home, the purchase date is considered to be the date you take occupancy. If you purchase a residence from your spouse, ancestor lineal descendant or other related parties you are ineligible for the credit."

"The credit is phased out or completely eliminated if you adjusted gross income (AGI) is too high. The phase out range for unmarried individuals and married individuals that file separately is between $75,000 and $95,000. The phase out range for married joint filers is between $150,000 and $170,000."

"The credit is really just a loan from the government. You must repay it (without interest) over 15 years starting with the second year after the credit was claimed on your 1040. "Each years repayment will be added to that years tax bill. In addition, if you sell the home, or stop using it as your primary residence before the credit has been repaid, an accelerated repayment clause may apply. If so, the unpaid credit balance must be paid with your form 1040 for the year when the triggering event occurs."

This information was provided courtesy of Tom Schloesser, CPA, Hometown Tax and Financial Sc. 110 Enterptise Dr #104 Verona, WI 53593. 608-845-5511