Homeowners and buyers see the most changes for 2008 filing
Creators News Service
Looking for a little light reading to prepare for tax time?
The U.S. House of Representatives lists 394 sections of the U.S. tax code that were amended, enacted, omitted, repealed or transferred in 2008.
Yet with all those changes, it was a slow year.
"Election years typically are not a big year for tax changes, and this is probably not going to be an exception," said Mark Luscombe, principal tax analyst with CCH Inc., a company that helps accountants and tax professionals stay informed. "However, because of the home mortgage crisis and the economic situation, we have had some legislation this year that have created some new changes for 2008 that taxpayers will have to be familiar with."
Most affected by this year's new laws are homebuyers and homeowners.
First-time homebuyers can apply a new first-time homebuyer credit of up to $7,500 to their tax bill. Even previous homeowners are considered first-timers if they haven't owned their principal residence in the past three years, according to the Internal Revenue Service Newswire. You must buy the home between April 9, 2008, and June 30, 2009. However, you don't have to wait until 2010 to realize the credit for 2009 purchases.
"If you buy a home [before] July 1, 2009, you can make an election to treat it as a 2008 purchase and claim the credit in 2008," Luscombe said.
However, this is not free money.
"The credit operates much like an interest-free loan, because it must be repaid over a 15-year period," according to an IRS media release, although you'll have as much as two years before payments are due. Taxpayers "must begin repaying the credit by including 1/15 of this amount, or $500, as an additional tax on his or her 2010 return."
Another perk for some homeowners is only available for 2008 returns, according to Luscombe. An additional standard deduction will help to offset state and local real estate taxes for those who don't itemize. That would mostly help owners of relatively inexpensive homes or those whose mortgage balances are paid off or close to it, because they have little or no interest deduction to make itemizing pay, Luscombe said.
Homeowners who plan to sell in the next five years may be stung by one section of the Housing and Economic Recovery Act of 2008. In the past, profit up to $500,000 from the sale of a home was not subject to capital gains tax, provided you had occupied the property as your principal residence for two of the previous five years. Starting Jan. 1, 2009, the amount of gain you can exclude from tax is prorated to subtract periods within those five years when you used the house as rental or vacation property, known as nonqualified use.
If you used the home as your principal residence in the beginning of the period of nonqualified use, then you're not affected, Luscombe said. "It only hurts you if the nonqualified use is before the principal residence use. They're trying to attack the people who had all these rental properties or vacation homes and were just moving into them for two years before selling them to get the full exclusion."
If, instead of realizing a gain, you are one of the millions of homeowners who sold their home at a loss this year, you may worry that the forgiven debt will be taxed. Although this was usually true in the past, the Mortgage Forgiveness Debt Relief Act of 2007 "generally allows taxpayers to exclude income from the discharge of debt on their principal residence," according to the IRS Newswire.
There are, of course, exceptions. If you've ever rented your home or used all or part of it for business, you may be ineligible for tax relief, according to the IRS. And remember, unlike business losses, losses from the sale or the foreclosure of personal property are not deductible.
Because there are so many changes -- even in a slow year -- always consult a professional if you have questions about your tax return.