Does the Housing Assistance Act Really Help Anyone?


The bills are flying fast and furious as Congress tries to shore up an ailing economy, bolster the housing market, and still put money in the coffers. Through it all, the IRS is getting bigger and tougher, as it is expected to bring in the money to pay for everything.

The latest bill, the Housing Assistance Tax Act of 2008 (HATA) is signed and part of law. Here are the highlights:

· The Treasury has the authority to rescue Fannie Mae and Freddie Mac. As reported, this privatizes the profits while socializing the risk and any losses (in other words, if they make money they keep it, but if they lose money, taxpayers will cover the bill).

· We got another government agency! (When in doubt, form a new agency.) The Federal Housing Finance Agency will have power over Fannie, Freddie and the 12 Federal Home Loan Banks.

We also got four major tax cuts. Sort of.

1. First-time home buyers will be entitled to a refundable tax credit of 10 percent of the purchase price of a principal residence, up to a maximum of $7,500, for properties bought between April 9, 2008, and July 1, 2009. However, there are three catches:

(a) It’s income-based. The credit begins to phase out for taxpayers with income over $75,000 ($150,000 for a joint return).

(b) It’s not really a tax credit. It’s a no-interest loan that you get to repay in equal installments over the next 15 years, unless you sell the home before then (in which case you get to repay the balance off your sale proceeds).

(c) You don’t really get the benefit of the tax credit off the purchase price—i.e., you can’t add $7,500 to your down-payment, or have that amount deducted from the home’s purchase price.

2. Non-itemizing taxpayers can now take a tax deduction equal to the amount of their state and local property tax, up to a maximum of $500, or $1,000 for a couple filing a joint return. This is a one-time-only deduction for the 2008 tax year.

3. The Gulf Opportunity (GO) Zone Act of 2005 was put into place after Katrina. HATA enhances and extends some of the incentives in that act. Taxpayers in affected GO Zone areas may amend prior returns to take into account receipt of hurricane-related recovery grants, and the start-construction deadline for certain property eligible for bonus depreciation in the GO Zone is extended.

4. HATA temporarily increases state low-income housing credits. Each state currently receives an annual allocation of tax credits equal to $2 per resident. The new law raises this limit to $2.20 per resident for the 2008 and 2009 tax years. HATA also temporarily maintains the credit at 9% of non-subsidized new construction.

In order to pay for it all, Congress enacted three major tax increases:

1. Beginning in the year 2011, banks and other credit card payment processors have to report gross annual receipts received through credit- and debit-card transactions for businesses with merchant accounts to the Internal Revenue Service. This includes online processors like PayPal, who will have to issue 1099s to vendors receiving remittances greater than $20,000 or those who perform 200+ transactions each year (NOTE: Some media is reporting this as $10,000, but our reading says it’s $20,000).

This is expected to increase revenue by decreasing underreporting of income. Add this new reporting to a soon-to-be-released IRS report estimating that sole proprietorships (unincorporated businesses) under-report tax by 50%, and I think we’ll see a huge audit initiative directed at small businesses.

2. The principal residence gain exclusion is taking a hit. Under prior law, you could exclude up to $250,000 in gains ($500,000 for joint filers) on the sale of your home (primary residence), as long as you had owned and lived in it for at least 2 out of the past 5 years. But now your gain exclusion will depend on actual, qualified usage. You’ll only get the exclusion for the time you actually spend living there. This new provision apples to home sales after Dec. 31, and the nonqualified use periods that count begin on or after Jan. 1, 2009. This one could have a big impact for people who plan to move into their vacation home at some point in the future or if you’re building your dream home while still living in your current residence. I think we’ll see a lot of impact here for higher income individuals.

3. The implementation of the worldwide allocation of interest is delayed until 2011. This provision was part of the American Jobs Creation Act of 2004.

I can see the public interest in having people report and pay tax on all of their income, and in keeping Freddie, Fannie and the rest in business. Whether this bill will truly help individual homeowners is another story. This may be a case of Congress doing anything to be seen doing something.

Diane Kennedy, CPA is the author of the best-selling Loophole of the Rich and Real Estate Loopholes, along with 5 other books. For more tax-saving information, see her website

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