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New Ground Rules in the Housing Law - New legislation creates tax breaks for homeowners

The new housing law—which includes the Housing  Assistance Tax Act of 2008—features several important provisions for homeowners and lenders. For the most part, the benefits are favorable to the public, but the new law also cracks down on a tax-saving device for certain vacation homeowners. Here is a brief overview of several key changes in the new law.
Home buyer’s tax credit: If you qualify as a first-time home buyer, you can claim a tax credit equal to $7,500 or 10% of the purchase price, whichever is less. A first-time homeowner is defined as someone who has not owned a principal residence for the last three years. The home must be purchased after April 8, 2008, and before July 1, 2009.
However, this new tax credit is phased out for single filers with an adjusted gross income (AGI) above $75,000 ($150,000 for joint filers). Furthermore, the credit must be repaid on your tax returns over a 15-year period.
Property tax deduction: If an individual, such as an elderly relative, does not itemize deductions on his or her 2008 tax return, the individual can deduct a $500 property tax allowance ($1,000 for joint filers). If the homeowner’s property taxes for the year are less than this special allowance, the deduction is limited to the taxes actually paid. This new deduction may be claimed in addition to the standard deduction on 2008 returns.
Renegotiated mortgages: Under the new law, you may be able to replace an existing mortgage on a principal residence with a new fixed-rate loan lasting at least 30 years. The amount of the new loan cannot exceed 90% of the current value of the property.
To obtain this relief for homeowners, your monthly housing payment (as of March 1, 2008) must exceed 31% of your monthly household income. The program will end on September 30, 2011.
Converted residences: One long-time tax strategy has been to convert a vacation home into a principal residence to benefit from the home–sale exclusion. Generally, the home–sale exclusion can shelter tax on gains of up to $250,000 ($500,000 for joint filers).  
For gains realized after 2008, the portion of the gain attributable to nonqualified use of a principal residence does not qualify for the home–sale exclusion. Using the home as a vacation home is a nonqualified use. Saving grace: This provision only applies to nonqualified use after 2008.
The new law also includes a wide array of other provisions, including the following:
*The loan limits for Fannie Mae and Freddie Mac are increased.
*The low-income housing credit is modified and simplified.
*The rules for REITs (real estate investment trusts) are modified.
*Additional funding is authorized for mortgage revenue bonds.
*The rehabilitation tax credit is enhanced.
*New rules are designed to offer greater protection for homeowners using reverse mortgages.
The scope of the new housing law is immense. To determine the impact on your personal situation, contact a professional tax adviser.

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