New tax breaks a relief to homeowners
This deduction is "aimed at people in the subprime
loan category because mortgage insurance is only required if (the
borrower) puts down less than 20 percent on the purchase of a home.
It's targeted at the zero-down, 5 percent down, 10 percent down
(borrowers)," Roth says.
Surviving spouses allowed more
time to sell
The third tax break concerns capital gains tax on the sale of a
principal residence when a person's spouse dies. Federal
law allows singles and married couples to exclude $250,000 and $500,000,
respectively, of the gain on the sale of their home from capital
gains tax if certain tests are met.
The differential treatment on the basis of marital
status meant that a person whose spouse died had to sell his or
her home in the same tax year as the spouse's death to take advantage
of the larger tax break.
"If your spouse died in December, unless you could
sell by Dec. 31, you could only exclude $250,000, instead of
$500,000, so you could end up with a horrendous tax bill on the
sale of the home, whereas if your spouse died in January, you didn't
have that problem," Roth says.
The new law allows a surviving spouse to claim the $500,000 if the home is sold within two years after the date of the spouse's death, which eliminates the tax liability on an additional $250,000 of capital gain if the other tests are met as well.
Tax breaks expected to cost U.S. Treasury
Tax breaks are never free, since the government collects less money
from taxpayers as a result. The Congressional
Budget Office, in a September 2007 report, estimated that the
forgiveness of debt exclusion on principal residences would decrease
federal tax revenues by $179 million in 2008 and $318 million in
2009. (The retroactive 2007 tax year wasn't included in the analysis.)
The extension of the mortgage insurance tax break is expected to
decrease tax collections by $15 million in 2008, $109 million in
2009 and $142 million in 2010. States are likely to forfeit some
tax dollars too, because state tax codes typically use federal adjusted
gross income to calculate income taxes.
Opinions vary as to whether these tax breaks benefit society and the overall U.S. economy, in addition to
Bush says the debt relief act was "a really good piece of legislation" that would
"increase the incentive for borrowers and lenders to work together to refinance loans" and "allow American
families to secure lower mortgage payments without facing higher taxes."
But the Tax Foundation, a nonprofit, nonpartisan
research group in Washington, D.C., says that housing is one of
the most preferred asset classes in the tax code. Therefore, the
organization says, housing shouldn't be the beneficiary of any more
Still, strapped borrowers will probably welcome any
legislation aimed at helping those who are upside down on their