Disclaimer of Liability
The information in this e-newsletter is for general guidance only, and does not constitute the provision of legal advice, tax advice,
accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used
as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or
taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular
situation.
The author of the tax articles in this e-newsletter did not intend nor write the advice to be used to avoid any penalty imposed by a
taxing authority, nor may any user/recipient of this document use this document's written tax advice for that purpose. This document's
tax advice was written specifically to support the promotion or marketing of the transaction/matter addressed by the written tax advice.
Therefore, any user/recipient of this document should seek an independent tax professional's advice regarding the user/recipient's
particular circumstances.
The information is provided "as is" with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and
without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for
a particular purpose.
The information in this e-newsletter is for general guidance only, and does not constitute the provision of legal advice, tax advice,
accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used
as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or
taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular
situation.
The author of the tax articles in this e-newsletter did not intend nor write the advice to be used to avoid any penalty imposed by a
taxing authority, nor may any user/recipient of this document use this document's written tax advice for that purpose. This document's
tax advice was written specifically to support the promotion or marketing of the transaction/matter addressed by the written tax advice.
Therefore, any user/recipient of this document should seek an independent tax professional's advice regarding the user/recipient's
particular circumstances.
The information is provided "as is" with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and
without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for
a particular purpose.
| Serving the Central Pennsylvania area since 1981 |
| Robert A. Romako, CPA |
| NEW TAX ACT MAY HAVE SOMETHING FOR EVERYONE |
The Housing Assistance Tax Act of 2008, now awaiting the President’s signature, has the
potential to bestow a tax benefit on nearly every individual. This article summarizes the key
provisions so that you can use them to your maximum advantage.
• New tax credit for first-time home buyers. This credit actually amounts to an interest-
free loan from the government, because unlike traditional tax credits, this one needs to be repaid.
The credit is available to individuals buying their principle residence for the first time, and is equal
to the lesser of 10% of the purchase price or $7,500. The credit phases out for individuals with
adjusted gross incomes of between $75,000 and $95,000, or between $150,000 and $170,000
for joint filers. It is available for homes purchased after April 8, 2008 and before July 9, 2009. An
interesting wrinkle allows you to claim the credit for a home purchased between January 1, 2009
and June 30, 2009 on your 2008 tax return, rather than having to wait until 2009.
Now, here’s the bad news – the credit needs to be repaid. Beginning in the tax year 2 years
after the credit was claimed (e.g., the 2010 return if the credit was claimed in 2008), the credit is
recaptured as an additional tax at the rate of 6-2/3% of the original credit. Therefore, the credit
will be repaid over a period of 15 years. If the home is sold or ceases to qualify as the principle
residence, the unpaid credits all become due in that year. However, if the recapture exceeds the
gain on sale, the credit recapture is capped at the amount of the gain.
So, is the credit a good deal? It is, because the government is allowing you to keep, for a
2-year period, taxes that you would otherwise owe. As long as you realize the need to make
the repayment, and increase your withholding or set aside funds to do so, using the tax credit
makes good sense.
• New property tax deduction for non-itemizers. For 2008 only (although this may later
be extended), individuals who claim the standard deduction in lieu of itemizing can claim an
additional tax deduction of the lesser of state and local property taxes paid in 2008 or $500
($1,000 for joint filers). For those of you who don’t itemize, be sure to save your paid property tax
receipts in order to document this deduction.
• Low-income housing credit and rehabilitation credit can offset AMT. The new Act
allows the low-income housing tax credit and the rehabilitation credit to offset the alternative
minimum tax. Previously, individuals subject to AMT received no benefit if they owned investments
that produced these tax credits. Now, for buildings placed in service after December 31, 2007,
credits earned can offset the AMT tax. This provision should spark renewed interest in real estate
ventures that develop properties to generate these types of credits for investors.
potential to bestow a tax benefit on nearly every individual. This article summarizes the key
provisions so that you can use them to your maximum advantage.
• New tax credit for first-time home buyers. This credit actually amounts to an interest-
free loan from the government, because unlike traditional tax credits, this one needs to be repaid.
The credit is available to individuals buying their principle residence for the first time, and is equal
to the lesser of 10% of the purchase price or $7,500. The credit phases out for individuals with
adjusted gross incomes of between $75,000 and $95,000, or between $150,000 and $170,000
for joint filers. It is available for homes purchased after April 8, 2008 and before July 9, 2009. An
interesting wrinkle allows you to claim the credit for a home purchased between January 1, 2009
and June 30, 2009 on your 2008 tax return, rather than having to wait until 2009.
Now, here’s the bad news – the credit needs to be repaid. Beginning in the tax year 2 years
after the credit was claimed (e.g., the 2010 return if the credit was claimed in 2008), the credit is
recaptured as an additional tax at the rate of 6-2/3% of the original credit. Therefore, the credit
will be repaid over a period of 15 years. If the home is sold or ceases to qualify as the principle
residence, the unpaid credits all become due in that year. However, if the recapture exceeds the
gain on sale, the credit recapture is capped at the amount of the gain.
So, is the credit a good deal? It is, because the government is allowing you to keep, for a
2-year period, taxes that you would otherwise owe. As long as you realize the need to make
the repayment, and increase your withholding or set aside funds to do so, using the tax credit
makes good sense.
• New property tax deduction for non-itemizers. For 2008 only (although this may later
be extended), individuals who claim the standard deduction in lieu of itemizing can claim an
additional tax deduction of the lesser of state and local property taxes paid in 2008 or $500
($1,000 for joint filers). For those of you who don’t itemize, be sure to save your paid property tax
receipts in order to document this deduction.
• Low-income housing credit and rehabilitation credit can offset AMT. The new Act
allows the low-income housing tax credit and the rehabilitation credit to offset the alternative
minimum tax. Previously, individuals subject to AMT received no benefit if they owned investments
that produced these tax credits. Now, for buildings placed in service after December 31, 2007,
credits earned can offset the AMT tax. This provision should spark renewed interest in real estate
ventures that develop properties to generate these types of credits for investors.
AUGUST 2008
| Robert A. Romako, CPA Phone:717.774.3047 |