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.