First-Time Home Buyer Tax Credit

The National Association of Home Builders has put up a great site about the First-Time Home Buyer Tax Credit: http://www.federalhousingtaxcredit.com/faq.php

This $7,500 tax refundable credit (you get the refund, even if your taxes are less than $7,500) is available to qualifying home buyers until June 30, 2009.

Essentially, you are borrowing $7,500 from the US Government to buy a home; you repay the money at $500 per year for 15 years or the balance owed when you sell that home in the future.

Check out the link above for all of the details. It’s a great interest free loan if you haven’t owned a home in the past three years, and you’d like to do so.

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President’s signature sets effective date of various Housing Act provisions

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))

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Related Party Leases in Wisconsin…..Big TAX Law Change!

Addback of Related Party Interest and Rent Expenses (From Wis DOR email today)

Provisions of 2007 Wisconsin Act 226 require interest and rent expenses paid, accrued, or incurred to a related party to be added back to income. However, the Act allows a deduction for those expenses if certain requirements are met.

This law change applies to corporations, tax-option (S) corporations, partnerships, LLCs, individuals, fiduciaries, and insurance companies. The change is effective for taxable years beginning on or after January 1, 2008.

An article on this topic has been posted to the Department of Revenue’s web page. The article may be accessed at http://www.revenue.wi.gov/taxpro/news/080619.html. The article provides:

  • A description of transactions affected by this law change
  • Requirements that must be met in order to deduct related party interest and rent expenses
  • Details and examples of what is considered a “related entity”

Note that taxpayers affected by this new law will be required to complete Wisconsin Schedule RT. More guidance will be provided in the near future

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IRS Increases Mileage Rates

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IRS Increases Mileage Rates

Due to rising gas prices, the mileage rate will increase by eight cents to 58.5 cents a mile for all business miles driven from July 1 through Dec. 31, 2008. The new rate for computing deductible medical or moving expenses will also increase by eight cents to 27 cents a mile. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile. See news release IR-2008-82 and Announcement 2008-63.

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Federal Extension to pay June 16 Estimates

IRS extends estimated tax payment and other deadlines for storm victims in 10 states
IR 2008-78
IRS has announced that victims of recent storms and flooding in Iowa, Indiana, and Wisconsin have more time to make quarterly estimated tax payments normally due on June 16, 2008. Similar relief was extended earlier this year to victims of storms and floods in seven other states. Many other filing, tax payments and certain other time sensitive acts also are postponed for victims of storms and flooding in 2008.

Who gets relief. Only taxpayers considered to be affected taxpayers are eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts. Affected taxpayers are those listed in Reg. § 301.7508A-1(d)(1) and thus include:

    • any individual whose principal residence, and any business entity whose principal place of business, is located in the counties designated as disaster areas;
    • any individual who is a relief worker assisting in a covered disaster area, regardless of whether he is affiliated with recognized government or philanthropic organizations;
    • any individual whose principal residence, and any business entity whose principal place of business, is not located in a covered disaster area, but whose records necessary to meet a filing or payment deadline are maintained in a covered disaster area, or whose tax professional/practitioner is located in a covered disaster area;
    • any estate or trust that has tax records necessary to meet a filing or payment deadline in a covered disaster area; and
    • any spouse of an affected taxpayer, solely with regard to a joint return of the husband and wife.

What may be postponed. Under Code Sec. 7508A, IRS gives affected taxpayers until the extended date (specified by county, below) to file most tax returns (including individual, estate, trust, partnership, C corporation, S corporation income tax returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date falling on or after the onset date of the disaster (specified by county, below), and on or before the extended date.

IRS also gives affected taxpayers until the extended date to perform other time-sensitive actions described in Reg. § 301.7508A-1(c)(1) and Rev Proc 2007-56, 2007-34 IRB 388, that are due to be performed on or after the onset date of the disaster, and on or before the extended date. This relief also includes the filing of Form 5500 series returns, in the way described in Rev Proc 2007-56, Sec. 8. Additionally, the relief described in Rev Proc 2007-56, Sec. 17 relating to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 or 5498 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. IRS, however, will abate penalties for failure to make timely employment and excise deposits, due on or after the onset date of the disaster, and on or before the information return delayed date (specified by county, below), provided the taxpayer made these deposits by the information return delayed date.

IRS will waive the failure to deposit penalties for employment and excise deposits due on or after the onset date of the disaster, and on or before the deposit delayed date, as long as the deposits were made by the deposit delayed date.

Affected counties and dates for storms and floods in May and June of this year are as follows:
Arkansas: The following are presidential disaster areas qualifying for individual assistance: Arkansas, Benton, Cleburne, Conway, Crittenden, Grant, Lonoke, Mississippi, Phillips, Pulaski, Saline and Van Buren counties.

For these Arkansas counties, the onset date of the disaster was May 2, 2008, the extended date is July 21, 2008, the information return delayed date was May 19, 2008, and the deposit delayed date was May 19, 2008.

Colorado: The following counties are presidential disaster areas qualifying for individual assistance: Larimer and Weld counties.

For these Colorado counties, the onset date of the disaster was May 22, 2008, the extended date is July 25, 2008, the information return delayed date was June 6, 2008, and the deposit delayed date was June 6, 2008.

Georgia: The following are presidential disaster areas qualifying for individual assistance: Bibb, Carroll, Douglas, Emanuel, Jefferson, Jenkins, Johnson, Laurens, McIntosh and Twiggs counties.

For these Georgia counties, the onset date of the disaster was May 11, 2008, the extended date is July 22, 2008, the information return delayed date was May 27, 2008, and the deposit delayed date was May 27, 2008.

Iowa: The following are presidential disaster areas qualifying for individual assistance: Adams, Benton, Black Hawk, Bremer, Buchanan, Butler, Cedar, Cerro Gordo, Delaware, Fayette, Floyd, Hardin, Johnson, Jones, Linn, Louisa, Marion, Muscatine, Page, Polk, Story, Tama, Union and Winneshiek counties.

For these Iowa counties, the onset date of the disaster is May 25, 2008, the extended date is July 28, 2008, the information return delayed date is June 9, 2008, and the deposit delayed date was June 9, 2008.

Indiana: The following are presidential disaster areas qualifying for individual assistance: Adams, Bartholomew, Brown, Clay, Daviess, Dearborn, Greene, Hamilton, Hancock, Henry, Jackson, Jennings, Johnson, Knox, Marion, Monroe, Morgan, Owen, Parke, Putnam, Randolph, Rush, Shelby, Sullivan, Vermillion a
nd Vigo counties.

For these Indiana counties, the onset date of the disaster is May 30, 2008, the extended date is Aug. 7, 2008, the information return delayed date is June 16, 2008, and the deposit delayed date is June 16, 2008.

Missouri: The following are presidential disaster areas qualifying for individual assistance: Barry, Jasper and Newton counties.

For these Missouri counties, the onset date of the disaster was May 10, 2008, the extended date is July 22, 2008, the information return delayed date was May 27, 2008, and the deposit delayed date was May 27, 2008.

Oklahoma: The following are presidential disaster areas qualifying for individual assistance: Craig, Latimer, Ottawa and Pittsburg counties.

For these Oklahoma counties, the onset date of the disaster was May 10, 2008, the extended date is July 14, 2008, the information return delayed date was May 27, 2008, and the deposit delayed date was May 27, 2008.

Wisconsin: The following are presidential disaster areas qualifying for individual assistance: Crawford, Columbia, Sauk, Milwaukee and Vernon counties.

For these Wisconsin counties, the onset date of the disaster was June 5, 2008, the extended date is Aug. 13, 2008, the information return delayed date is June 20, 2008, and the deposit delayed date is June 20, 2008.

Claiming disaster loss on previous year’s return. A taxpayer that sustains a loss attributable to a disaster occurring in a Presidential disaster area may elect to deduct that loss on his return for the tax year immediately preceding the tax year in which the disaster occurred. (Code Sec. 165(i)) Generally, a taxpayer must make this election by filing a return, an amended return, or a refund claim on or before the later of (i) the due date of his income tax return (determined without regard to any filing extension) for the tax year in which the disaster actually occurred, or (ii) the due date of his tax return (determined with regard to any filing extension) for the immediately preceding tax year. The election is irrevocable 90 days after it is made. (Reg. § 1.165-11(e)) Because of the new disaster area designation, taxpayers in affected counties designated as disaster areas in 2008 can elect to claim a 2008 disaster loss on their 2007 returns, instead of on their 2008 returns.

    RIA observation: Claiming the disaster loss for the year before the loss occurred saves taxes immediately, without having to wait until the end of the year in which the loss was sustained. In some cases, the deduction may result in a net operating loss, which could result in a refund from an earlier year to which it is carried. On the other hand, deducting the loss in the year the loss actually occurred may result in bigger tax savings if the taxpayer is in a higher bracket in that year.

RIA Research References: For postponement of tax deadlines due to disasters, see FTC 2d/FIN ¶ S-8500; United States Tax Reporter ¶ 75,08A4; TaxDesk ¶ 570,306.

Source: Federal Taxes Weekly Alert (preview) 06/19/2008, Volume 54, No. 25

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