President’s signature sets effective date of various Housing Act provisions (From RIA)
Yesterday morning July 30, the President signed into law H.R. 3221, the “American Housing Rescue and Foreclosure Prevention Act of 2008” (the Housing Act, P.L. 110-289). The tax title of the Housing Act carries tax breaks for homebuyers and homeowners, liberalized low-income housing tax credit rules, relaxed requirements for tax-exempt bonds, eased AMT rules, and important tax changes for business, including information reporting of credit card transactions and AMT liberalizations.
The President’s signature sets the effective date for numerous Housing Act provisions with an effective date geared to the July 30, 2008, date of enactment, including the following:
Interest earned on exempt facility, qualified residential rental, and veterans’ mortgage bonds isn’t an AMT preference: For bonds issued after July 30, 2008, tax-exempt interest earned on the following instruments is not a preference item for AMT purposes:
(1) exempt facility bonds issued as part of an issue 95% or more of the net proceeds of which are used to provide qualified residential rental projects (as defined in Code Sec. 142(d));
(2) qualified mortgage bonds (as defined in Code Sec. 143(a)); and
(3) qualified veterans’ mortgage bonds (as defined in Code Sec. 143(b)) (Code Sec. 57(a)(5)(C)(iii), as amended by Act § 3022(a)(1))
Additionally, tax-exempt interest earned on the above three types of bonds is not included in the corporate AMT adjustment based on current earnings. (Code Sec. 56(g)(4)(B)(iii), as amended by Act § 3022(a)(2))
FHLB-guaranteed state & local bonds eligible for tax-exempt bond treatment: Interest on state and local government bonds generally is excluded from gross income, but not if the bonds are treated as federally guaranteed under Code Sec. 149(b)(2). Pre-Act law excepted certain guarantee programs from this rule (e.g., guarantees by the Federal Home Loan Mortgage Corporation (FHLMC) or the Government National Mortgage Association (GNMA)), but there was no exception for bonds backed by a Federal home loan bank (FHLB). The Housing Act provides that bonds issued by state and local governments are not treated as federally guaranteed because of any guarantee by a FHLB made in connection with the original issuance of a bond during the period beginning on July 30, 2008 and ending on Dec. 31, 2010 (or a renewal or extension of a guarantee so made). (Code Sec. 149(b)(3)(A)(iv), as amended by Act § 3023(a)) The change is effective for guarantees made after July 30, 2008.
Election to include reimbursement for hurricane-related casualty in loss year: Casualty losses are generally allowed for the tax year of the loss. For a disaster loss arising in an area determined by the President to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, a taxpayer may elect to take the loss into account for the tax year immediately before that in which the disaster occurred. Under pre-Act law, Reg. § 1.165-1(d)(2)(iii) provides that when a taxpayer receives reimbursement for such loss in a later tax year, the deductible loss isn’t recomputed for the tax year in which the deduction was taken. Instead, the reimbursement amount is taken into income in the tax year received.
The Housing Act allows a taxpayer who claimed a casualty loss to a principal residence (within the meaning of the Code Sec. 121 homesale exclusion rules) from Hurricanes Katrina, Rita, or Wilma, and in a later year receives a grant under Public Laws 109-148, 109-234, or 110-116 as reimbursement of that loss, to elect to file an amended return for the tax year to which the deduction was allowed. On the amended return, the casualty loss deduction must be reduced, but not below zero, by the amount of the reimbursement. The election to file an amended return under the above rule applies for any grant only if any amended income tax returns with respect to that grant are filed by the later of: (1) the due date for filing the tax return for the tax year in which the taxpayer receives the grant, or (2) July 30, 2009 (one year after the July 30, 2008, enactment date). (Act §3082(a)(2)(B)) No penalty or interest applies if payment is made no later than one year after the filing of the amended return.
Real Estate Investment Trust (REIT) rules liberalized. A REIT is an entity that otherwise would be taxed as a U.S. corporation but elects to be taxed under a special REIT tax regime. To qualify as a REIT, an entity must meet a number of requirements. At least 90% of REIT income (other than net capital gain) must be distributed annually; the REIT must derive most of its income from passive, generally real-estate-related investments; and REIT assets must be primarily real-estate-related. In addition, a REIT must have transferable interests and at least 100 shareholders, and no more than 50% of the REIT interests may be owned by 5 or fewer individual shareholders. The portion of a REIT’s income that is distributed to its shareholders each year as a dividend is deductible by the REIT and thus is not taxed at the entity level, only at the investor level.
The Housing Act makes many technical changes to the REIT rules, all of them tied into the July 30, 2008, enactment date. For example, it liberalizes the REIT rules by, among other items, clarifying that REITs can earn foreign currency income associated with real estate activities (effective for gain and items of income recognized after July 30, 2008), increasing the permissible size of REIT investments in taxable REIT subsidiaries (effective for tax years beginning after July 30, 2008), and extending the special rules for lodging facilities to health care facilities (effective for tax years beginning after July 30, 2008). (Code Secs. 856 and 857, as amended by various Act Sections)
Alternate procedure for nonforeign affidavits under FIRPTA rules: Under the Foreign Investment in Real Property Tax Act (FIRPTA) rules in Code Sec. 897, a nonresident alien or a foreign corporation is generally taxed on gain realized from a disposition of an interest in U.S. real property (USRPI) as if that gain or loss were effectively connected to a U.S. trade or business carried on by that person during the year. Although the tax is imposed upon the dispositions on a net basis, the transferee of a USRPI is generally required to deduct and withhold tax equal to 10% of the amount realized. Under one of several exceptions under pre-Act law, a transferee is not required to withhold if the transferor furnishes the transferee with an affidavit stating, under penalties of perjury, the transferor’s U.S. taxpayer’s identification number (i.e., social security number or entity identification number (EIN)) and that the transferor is not a foreign person (nonforeign affidavit or affidavit).
For dispositions of USRPIs after July 30, 2008, the Act provides an alternative procedure for furnishing the nonforeign
affidavit. Under this procedure, instead of furnishing a nonforeign affidavit to the transferee, a transferor may furnish the affidavit to a “qualified substitute.” The qualified substitute is then required to furnish a statement to the transferee stating, under penalties of perjury, that the qualified substitute has the affidavit in his possession. (Code Sec. 1445(b)(9)(A), as amended by Act § 3024(a)) A qualified substitute is the person (including any attorney or title company) responsible for closing the transaction (other than the transferor’s agent), and the transferee’s agent.
Modified estimated tax payment rules for large corporations: The Act makes two changes in the estimated tax payment rules for large corporations (those with assets of $1 billion or more):
(1) It repeals the changes made by prior legislation for required installments of estimated tax for July, August, and September of 2012. Thus, large corporations will make regular estimated tax payments for these installments based on their income tax liability. (Act § 3094(a))
(2) It increases the required installments of estimated tax for July, August, and September of 2013, as in effect on July 30, 2008, by 16.75%, with corresponding reductions in the next required payment. (Act § 3094(b))
