The Housing Assistance Tax Act of 2008, part of the housing bill signed into law on July 30, includes two homeowner-targeted provisions that may benefit you - and one that could hurt.

• First-time homebuyer credit. Purchase your first home after April 8, 2008, and before July 1, 2009, and you may be able to take advantage of a federal income tax credit of up to $7,500.
   
  • You're considered a "first-time homebuyer" if you had no ownership interest in a principal residence during the three years before the purchase.
  • The credit is refundable, so you could get money back if the amount you're eligible to claim is more than the tax you owe.
  • The credit is reduced when modified adjusted gross income exceeds $75,000 if you're single and $150,000 if you're married filing jointly.
  • A house you construct qualifies, but one you purchase from relatives generally does not.
  • There's a recapture provision, meaning you'll have to pay the credit back in most cases. The payback period is spread over 15 years, beginning two years after you buy your home.
     
• Additional standard deduction. For 2008 and 2009 you can deduct real property taxes even if you don't itemize.
   
  • The break takes the form of an increased standard deduction.
  • The amount of this benefit is the lesser of property taxes you actually pay during the year or $500 ($1,000 for married filing jointly).
     
• Reduced home sale exclusion. Generally, up to $500,000 ($250,000 for singles) of gain on the sale of your principal residence is tax-free, as long as you meet time and use requirements.
   
  • The new rules, effective for sales after December 31, 2008, reduce the gain exclusion for "nonqualified use," such as a rental or as a vacation home.
  • The amount of the reduction is based on the amount of time after December 31, 2008, when the home is not the principal residence of you, your spouse, or former spouse. Some exceptions apply.

For more information on how these tax changes could affect you, give us a call.
 

 Tax Talk

Lean-burn vehicle credit. The IRS recently announced that certain advanced lean-burn technology vehicles will qualify for the alternative motor vehicle tax credit. Previously, only hybrid, fuel cell, and alternative fuel vehicles qualified. Now two Volkswagen and three Mercedes lean-burn technology models that generally run on diesel fuel qualify for the credit. Reminder: the credit starts to phase out once the manufacturer sells 60,000 vehicles that qualify for the credit.

Extension period shortened. Partnerships are "pass-through" entities that file Form 1065 reporting partnership income but paying no income tax. Instead, the partners pay tax on their respective share of income on their personal tax returns. In the past, both partnerships and individuals could get a filing extension for six months beyond the original return filing deadline. This often created problems for partners who had difficulty getting partnership information (K-1s) on time to meet their individual extended filing deadline.

Effective for tax returns filed in 2009 (which includes the 2008 partnership return), the extension period for partnerships is shortened to five months, giving individual partners an extra month to get the information they need to file their individual returns on time.

Partnerships should mark their calendars: 2008 returns can only be extended until September 15, 2009, not until October 15 as in prior years.

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