August 3, 2008

Tax Breaks and the Housing Bill

Today’s post is a continuation of our tour of the recently passed housing bill. Up next, taxes and the Housing and Economic Recovery Act of 2008.

Here is a summary of how the Housing and Economic Recovery Act of 2008 will change the federal tax laws:

Provides $15 billion in housing tax breaks.
- Gives first-time homebuyers a tax credit of $7,500. This only applies to those who brought or will buy the home between last April through the end of next June (April 1, 2008 to July 1, 2009). Also, note that the details of this bill are still being sorted out, but one of the requirements might be that the homebuyer must stay in the home for 15 years (source: Dave Hardin, founder of Covenant Mortgage, on Mortgage Matters). Note: To clarify this point, this is a $7,500 tax credit that must be paid back in 15 years. In essence it is a tax-free loan to first-time homebuyers who buy within the time specified. (source: Senator Barbara Boxer’s website) For more on this, see the comment section. SW 8-12-08
- Allows those who don’t itemize to claim a housing deduction on their 2008 federal income taxes: $500 for individuals and $1000 for joint filers. Approximately 40% of homeowners do not currently itemize. Those that fall in this category are mostly those with less expensive home and those who have paid-off or nearly paid-off their home loans; retirees often fit in this category. This is a one year only deal. (source: Martin Vaughan, The Wall Street Journal)
- Includes low-income housing tax breaks.
Increases by $11 billion the municipal bond authority of states. This can be used for:
- low-interest loans to first-time homebuyers
- construction of low-income rental housing
- refinancing of subprime loans

Additional sources: The Associated Press and The Orange County Register

For more on this tour of the housing bill, see previous posts “Fannie, Freddie and the Housing Bill” and “The FHA and the Housing Bill.“

Next week: A final review of components in the Housing and Economic Recovery Act of 2008

Miley Cyrus

very interesting
Sylvia Walker

I just saw this quote on Senator Boxer’s website. It helps to clarify this first-time homebuyers provision in the recent housing bill: “Creates a refundable tax credit for first-time homebuyers that works like an interest-free loan of up to $7,500 (to be paid back over 15 years).”

The website also provides some additional federal tax policy information: “In addition, the legislation provides a temporary increase in the Low-Income Housing Tax Credit and simplification of the credit..." It went on to say that the reason was to help put builders to work building affordable housing.
Sylvia Walker

HB,

Thanks for the input. There are a lot of details associated with the housing bill that are still being parsed out. So if anyone has any more information on this point or any others related to the recent housing bill passed by Congress and signed by the president, please leave a comment. I appreciate any information anyone can provide.
HB

I'm under the impression that the "tax credit" of $7500 is actually an interest free loan that needs to be paid back within 5 years. It would have been nicer if it was a true tax credit to those of us that were responsible and didn't jump into all those no-down interest free loans and are in the market to buy now.

Orange County Sweet Digs