What the New Housing Bill Means to You
From a higher tax deduction to reverse mortgage changes, what you should know.
Aug. 12, 2008 — -- If you're a homeowner, or wish to become one, you need to know the details behind the housing bill pushed through Congress and signed recently by President Bush.
Though triggered by the crisis in the mortgage market, the new legislation goes well beyond helping those facing imminent foreclosure. The Housing and Economic Recovery Act of 2008 contains a number of measures meant to lend assistance to current and would-be homeowners and, in turn, give a boost to the U.S. housing market.
These provisions are designed to assist first-time homebuyers, existing homeowners with low-mortgage balances and retirees looking to tap their home equity as an income source. For some, there's a downside. This category includes second-home owners who had hoped to escape capital gains tax on the sale of a vacation or rental property.
Whether you stand to gain or lose, by knowing the specifics, you can maximize the benefits or minimize the costs. Here's a rundown on key provisions within the Housing and Recovery Act that affect current or would-be homeowners.
Standard deduction for property taxes: Homeowners who claim the standard deduction on their federal tax returns rather than itemize deductions will be eligible for a higher standard deduction as an offset to state and local property taxes. This measure will benefit homeowners with a low mortgage balance or no mortgage at all.
For many taxpayers, the home mortgage interest deduction is the main reason they bother to itemize at all. Once your mortgage falls below a certain level, your annual interest costs are not enough to make it worth itemizing. And once you stop itemizing, you can no longer deduct the cost of state or local property taxes.
Under the new housing act, a single individual will be able to deduct up to $500 for property taxes paid; for married couples, the limit is $1,000. For qualifying taxpayers, the total standard deduction for an individual will be $5,950 and for a married couple it will be $11,900.
This addition to the standard deduction is scheduled to be in place only for 2008, but don't be surprised if it is extended as it is likely to prove quite popular.
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