Sunday, August 3, 2008

What have they done now?

I have been reading the last few days about the mortgage crisis we are now involved in, and came across the three new tax changes that are part of the housing rescue and foreclosure prevention act of 2008, that was signed into law July 30th. The first two are intended to be help full, and the third can be damaging.
The first is a tax credit of up to $7500.00 to qualified buyers of principal residences. The maximum credit is 10% of the purchase price, or $7500.00, whichever is the lesser. The credit is refundable, and that means you can use it to offset your entire federal income tax liability. This credit is only available between April 8, 2008, and July 1, 2009. Sounds good so far,BUT, and there's always a but, you can't use it to reduce the alternative minimum tax
The credit cannot be used by high income singles who's income is
$75,000 or above, or couples with $90.000 or above. Well, that sounds OK. Yeah, that's what I thought, but here is the kick in the pants. You have to REPAY the credit ! If you take the credit, you have to repay the money, minus interest, starting in 2010, at $500 dollars a year. And if you die, or sell the house before it is paid, then you are responsible for the remaining money all at once. This sounds like its adding to the problem to me, and it sounds a lot like what got us in this position in the first place.

The second change is really not a big deal, but you do not have to pay it back. It allows unmarried people to claim up to $500 dollars of their state and local property taxes to their normal standard deduction, and married people can add $1000, as long as it does not exceed what you actually pay. Like I said before, not really a big deal, but is is a little help.

The third change is sort of a punishment. Until now, you could convert a former rental property or vacation home into your principal residence, live in it for at least two years, and then sell it. You would then qualify for the federal home sale gain exclusion. This tax saving loophole is being closed up through the Housing act, and punishing sellers for post-2008 periods when the property is not used as your principal residence. After 2008, if you live in a home that was originally owned, but not your principal residence, and then try to sell for profit, you would have to pay the capitol gains tax. I do not believe the changes will affect the housing market, or make home ownership any easier. The lenders that were giving loans to people they knew that could not afford them seem unaffected by these changes. I wonder, what exactly is Congress thinking ? They offer a $7500 dollar tax break to consumers, but make you pay it back ? Will the banks that are being bailed out have to repay the government ?


threio said...

Banks are not going to pay anybody back. If anything the ATM fees ill go to 5.00 by 2010!

Da Old Man said...

Here's what they are thinking: You and I contribute a couple bucks, if anything, to their elections and re-elections, while real estate and banking PACs contribute millions.

mac daniels said...

shit. i have rental property i figured we may try to live in for a bit to save some money for a better house. guess i can't do that w/o cap gains tax, huh?