$7500 Homebuyer Credit

[dyne]

personal property tax

I thought I read somewhere that the deduction for personal property tax would be allowable
ONLY for the 2008 tax year. H. R. 3221 says that the REAL ESTATE TAX only will be
allowable as an add-on to the standard deduction "...for a taxable year beginning in 2008..."
and ..."This provision applies to tax YEARS beginning in 2008." This seems to indicate
that this will be an ON-GOING matter. Comments?

[JoshinNC]

Leave it to Congress

I wonder if they are taking aim at this stategy:

Taxpayer has a commercial building for 20 years. TP exchanges via Sec 1031 for a house and rents it for 2 years to qualify the 1031 exchange. (I know is not official, but this seems to be a consensus time period) In year 3 they convert to the principal residence for another 2 years to qualify for Sec 121.

Under prior law, they could potentially exclude a lot of gain that may have come from the original commercial building. Under the new law, it looks like that at least some of that gain would be taxed.

Hmm... if holding period carries over in the 1031 exchange 20/24 is 83% of gain would be taxed?

to screw up some great long range planning opportunities for our clients.

Back to the drawing board.

[jimmcg]

I thought I read somewhere that the deduction for personal property tax would be allowable
ONLY for the 2008 tax year. H. R. 3221 says that the REAL ESTATE TAX only will be
allowable as an add-on to the standard deduction "...for a taxable year beginning in 2008..."
and ..."This provision applies to tax YEARS beginning in 2008." This seems to indicate
that this will be an ON-GOING matter. Comments?

I had heard the same thing however in my cursory look at HR3221 and the comm. reports I only see "beginning in 2008." Perhaps someone more astute than I knows the answer.

[Burke]

The NATP website summary is saying for 2008 tax year only.

[jimmcg]

The NATP website summary is saying for 2008 tax year only.

Yes it does say that in a number of summaries from reputable sources. I did not see anything that said that in the actual bill or comm.reports. I may have overlooked it and was wondering if anyone else had seen anything to that effect in the legislation.

[drdino]

depreciation?

Ex: I buy a house 1/1/09 for $100,000 (I'm single in this example). I rent the house from 1/1/09 to 12/31/10 (24 months). I took $7272.73 in deprecition during this time period. I then spend 6 months fixing up the house (it's neither rental nor personal residence at that time). I spend $50,000 on the fix up. So now my adjusted basis is $142,727.27 (100,000 - 7272.73 + 50,000). I move in on 7/1/11 and sell on 7/1/13 (24 months later) for $392,737.27 ($250,000 gain over adjusted basis). Under current (now previous) law I could exclude the entire $250,000 from income because the property was my primary residence for 24 of the last 60 months. Now, under this new law, I have to take 24 months of "non-qualified" use (rental) and divide that into the total 60 months, so 40% of my gain, or $100,000, is not excludable? Do I have this right? Do the six months when the property was neither rental nor primary residence count as "non-qualified" use, thus making my non-excludable (is that a word) percentage 50% of the gain?


Would the depreciation have to be recaptured?

[Snaggletooth]

Good Questions

Good questions Dr. Sinclair.

I think everything you have concluded in your example is true, except the 6 months of conversion would count toward residence. Watch for regulations on this, possibly limiting such conversion time to 3 months.

Depreciation recapture? Don't know, sir. There becomes a point in time whereby the amount of depreciation becomes unknown. This may sound like an antithesis, but how many clients do you have that rented their houses out 10 years ago, and still know how much depreciation was taken? What I'm trying to say is the IRS can get greedy here, but squeezing out amounts for recapture is going to be tough. Clients won't have records, in many cases preparers won't have records, and it is CERTAIN the IRS won't have records.

[OtisMozzetti]

Lack of records = taxpayer's problem

Depreciation recapture? Don't know, sir. There becomes a point in time whereby the amount of depreciation becomes unknown. This may sound like an antithesis, but how many clients do you have that rented their houses out 10 years ago, and still know how much depreciation was taken? What I'm trying to say is the IRS can get greedy here, but squeezing out amounts for recapture is going to be tough. Clients won't have records, in many cases preparers won't have records, and it is CERTAIN the IRS won't have records.

If records are incomplete, I suspect that the IRS is going to lean toward the most favorable interpretation from the government's revenue standpoint. And, you know, that sounds only fitting and proper, i.e. no reward for one's own laziness about keeping the books and records which the law requires.

[dwert]

The First Question Is...

My first question is, " How is IRS going to determine that you qualify for this money?" you can take the credit on your 2008 return as long as the "sale" is completed by July 1, 2009. So IRS is going to just give this money out without some accountability? Probably. Not saying any of us would ever prepare a false return, but you do remember when EIC first came on the scene. Let's see now I only have to prepare 134 returns and collect $1,005,000.00 and give a little to the wine-os off the street. I'm out of here. It's only a dream, do not take me seriously, but I certainly want IRS to do everything they can before they go handing out "my tax dollar" and the idea that they are going to keep records for the next 17 years on who owes what is another dream I can't imagine.

[AuditorTurnedGood]

That is a scary

My first question is, " How is IRS going to determine that you qualify for this money?" you can take the credit on your 2008 return as long as the "sale" is completed by July 1, 2009. So IRS is going to just give this money out without some accountability? Probably. Not saying any of us would ever prepare a false return, but you do remember when EIC first came on the scene. Let's see now I only have to prepare 134 returns and collect $1,005,000.00 and give a little to the wine-os off the street. I'm out of here. It's only a dream, do not take me seriously, but I certainly want IRS to do everything they can before they go handing out "my tax dollar" and the idea that they are going to keep records for the next 17 years on who owes what is another dream I can't imagine.

and very good point. Are we going to have to submit a copy of the HUD with the returns from now on? Also, how are they going to assure compliance with the first time home buyer qualification? They could compare my SSN against SSN's with 1098's on file for mortgage interest, I suppose, but that has disaster written all over it. I also think you should do about 268 returns before splitting the country, as 2 mil would give a nice stream of income if invested in a foreign country at 5% return. I too am just kidding. And by the way, one can use this credit on ANY first home, so if you're a renter and want to buy a kick butt 30FT Wellcraft with a kitchen, bathroom, and a place to sleep, happy cruising My tax dollars at work.

[Davc]

I wonder if they are taking aim at this stategy:

Taxpayer has a commercial building for 20 years. TP exchanges via Sec 1031 for a house and rents it for 2 years to qualify the 1031 exchange. (I know is not official, but this seems to be a consensus time period) In year 3 they convert to the principal residence for another 2 years to qualify for Sec 121.

A principle residence that was acquired in a 1031 exchange is not eligible for 121 until 5 years after the exchange.

[Davc]

Yes it does say that in a number of summaries from reputable sources. I did not see anything that said that in the actual bill or comm.reports. I may have overlooked it and was wondering if anyone else had seen anything to that effect in the legislation.

Tax years beginning in 2008 means years ending 12/31/08 - 11/30/09. Tax years beginning after 12/31/07 would mean multiple yrears.