Archive for the ‘2008 Housing Assistance Tax Act’ Category

IRS: LENDER OF FIRST RESORT

Monday, August 18th, 2008 by Joe Kristan

Professor Maule has been reviewing the stupid tax provisions of the recently-enacated housing bill. His current post addresses the new homebuyer credit that has to be paid back over 15 years:

If the taxpayer would not have purchased the house but for the credit, isn’t the Congress putting the United States Treasury into the same position as many sub-prime lenders put themselves when they made it possible for someone to acquire a home who wasn’t financially ready to do so? If the banks making the bad loans are bailed out by the United States, who bails out the United States?

The answer: you and I, dear fellow taxpayer.

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HOUSING BILL ENACTS 1099 REPORTING FOR CREDIT-CARD AND E-PAY VENDORS

Thursday, July 31st, 2008 by Joe Kristan

One revenue-raising provision of the new tax bill is aimed at the online economy. HR 3221 will required credit-card companies and online payment processors like PayPal to make 1099 reports to vendors recieving remittances over $10,000. This new rule takes effect starting in 2011. The Wall Street Journal describes the provision:
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The new reporting requirement is similar to a proposal the Bush administration has put forward in its most recent budgets as a way to ensure that taxes owed are being collected. It also applies to intermediary banks that process card payments for restaurants and brick-and-mortar retailers. Congressional tax estimators predict the reporting change will help the IRS collect an additional $9.5 billion in taxes owed by online and traditional businesses over the next 10 years.
The payment processors will be required to file a 1099 form for each merchant to the IRS and to the merchant. They won’t have to file for merchants with less than $10,000 in gross sales and less than 200 transactions in a given year.

The payment processing companies and credit card companies will now have to begin collecting tax identification numbers from the vendors to prepare for this. Vendors who don’t provide that information will find their remittances garnished, in effect, through “backup withholding” starting in 2012.
The IRS has always had the ability to obtain payment information from these providers as part of an investigation, but only through the cumbersome summons process, which can be dragged out in the courts for years. 1099 matching provides, at least in theory, a much more reliable way for the IRS to ferret out unreported income.
Still, lots of questions remain. Recent attempts to extend matching, like the K-1 matching program, have not gone smoothly. Will the IRS just send out blanket assessments if the top line of a tax return falls short of the 1099 amounts? Will there be lots of just erroneous assessments based on 1099s? And will new payment methods evolve that bypass these reporting rules?
The tax blogs are responding to the signing of HR 3221, including the following:
TaxProf Blog
Roger McEowen
The Wandering Tax Pro
Tax Guide for Investors
Tax Info Blog

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HOUSING TRAIN WRECK ENACTED

Wednesday, July 30th, 2008 by Joe Kristan

The President has signed the “Housing and Economic Recovery Act of 2008,” HR 3221.
So all of our housing and economic problems are solved, right?

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FANNIE MAE BAILOUT BILL RESTRICTS HOME SALE EXCLUSION FOR FORMER VACATION HOMES

Wednesday, July 30th, 2008 by Joe Kristan

Once some clever tax committee staff member comes up with a tax increase idea, it tends to pop up in bill after bill until it passes. One of these ideas graduates to the tax law in the Fannie Mae bailout bill, HR 3221.
First floated last year as a revenue offset to the debt forgiveness relief for mortgage defaulters, this provision reduces the ability to exclude gain on the sale of a principal residence when the home has been rented.
Taxpayers can exclude $250,000 on the gain on a home sale ($500,000 for joint filers) if the home has been used as a principal residence for two of the prior five years. Under the old rules, this allowed taxpayers with vacation homes to move into the homes as their primary residence for a few years before sale, qualifying them for the gain exclusion.
Under the new rules, taxpayers can only exclude gain based on how much time the house served as a principal residence while they owned it.

Example:
Assume that an individual buys a property on January 1, 2009, for $400,000, and uses it as rental property for two years claiming $20,000 of depreciation deductions. On January 1, 2011, the taxpayer converts the property to his principal residence. On January 1, 2014, the taxpayer sells the house and moves out.
As under present law, $20,000 gain attributable to the depreciation deductions is included in income.
Of the remaining $300,000 gain, 40% of the gain (2 years divided by 5 years), or $120,000, is allocated to nonqualified use and is not eligible for the exclusion. Since the remaining gain of $180,000 is less than the maximum gain of $250,000 that may be excluded, gain of $180,000 is excluded from gross income.

Of course it gets more complicated. If you have used a house as a principal residence but then move out, but still sell it in the five-year period qualifying for the home sale exclusion, there is no haircut for the period it wasn’t a personal residence after you moved out. Also, there is no haircut for absences up to 10 years while on active duty for the government, or for up to two years “due to change of employment, health conditions, or such other unforseen circumstances as may be specified by the Secretary.”
This provision takes effect for sales and exchanges after December 31, 2008, so if you are looking to sell your vacation home in the next five years, maybe it’s time to pack up and move there.
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flickr photo courtesy Lance and Erin

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CAN’T SELL HOUSING? BUILD MORE HOUSING!

Tuesday, July 29th, 2008 by Joe Kristan

So houses aren’t selling. Congress has passed a monstrosity to prop up the housing market and the two great tottering accounting gamesters, Fannie Mae and Freddie Mac. How does Congress solve the glut of housing? By subsidizing more housing construction!
The tax title of HR 3221 includes an expansion and sweetening of the low-income housing tax credit and rehab tax credit, to encourage the building of more housing units. The bill increases the per-state limit on allowable credits and makes technical changes that make the credit easier to use. You can find detail on these provisions here.
Solve a housing glut by subsidizing more construction! No wonder the economy is sputtering, with all of the talent of the nations’ economic supergeniuses wasted in Congress, rather than in the private sector.
Related: New York Times coverage.

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FANNIE, FREDDIE… IRS?

Tuesday, July 29th, 2008 by Joe Kristan

So we are in a great big mess because of the incontinent lending practices of the exquisitely well-connected Fannie Mae and Freddie Mac. So how do you solve the problem? Privatize? Nationalize?
Neither. You cut the IRS in on the action!
The “Housing Assistance Tax Act if 2008” — the tax title of H.R. 3221, the housing train wreck that the President is about to sign — makes makes the IRS the lender of first resort for “first time homebuyers” by providing a strange new tax credit. This tax credit, available for those buying homes in 2008 and 2009, will then have to be paid back as an additional tax, but without interest, over 15 years, starting with the second year after the credit is taken. That makes the credit an interest-free loan by the IRS.
How it works
This new credit is 10% of the purchase price of a house purchased in 2008 or 2009 by a qualifying “first-time” homebuyer. The maximum credit is $7,500 ($3,500 for married taxpayers filing separately). A first-time homebuyer is someone who had no ownership of a “principal residence” during the three-year period before the day the house was purchased.
It wouldn’t be a tax law without a lot of confusing limitations and requirements. The bigger ones include:
– You have to acquire the property between April 9, 2007 and July 1, 2009. If you are building the property, you have to move in by July 1, 2009.
– The credit phases out for taxpayers with adjusted gross income exceeding $75,000 ($150,000 for joint filers) over a $20,000 range. This means the credit is $0 at $95,000 AGI, or $175,000 for married taxpayers.
– No credit is allowed if the residence is purchased from a spouse, ancestor or lineal descendant.
– No part of the residence can be acquired by gift or inheritance.
– The credit is unavailable to a non-resident alien.
If you sell the property before the end of the 15-year “recapture period,” you have to pay back any of the credit that hasn’t yet been recaptured.
2008 refunds for 2009 purchases
If you buy the house in 2009, you can claim the credit on an amended 2008 return. If you use one of the loan shark rapid refund services, this makes the credit very close to “down payment assistance.” Another provision of H.R. 3221 outlaws seller-financed down payment assistance. Apperently Congress doesn’t want any competition.
And to think that Congress ignored serious alternative legislation, “H.R. 7802”.

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