Tax break waiting game

Well, 2008 is no different. Congress is hoping to exit Washington, D.C., by the end of September, but lawmakers still have a lot of work left to do.

They're taking care of part of it right now. The House has already passed the housing relief bill and the Senate also is expected to sign off on it soon. The legislation has gone by a lot of titles -- the Foreclosure Prevention Act, the Building American Homeownership Act, the FHA Modernization Act, to name just a few -- but the focus has stayed pretty much the same. Washington wants to make sure that the housing crisis, affecting homeowners and lenders, doesn't get so out of hand that it takes the U.S. economy completely down. That definitely would not make for good campaign ads!

In the latest incarnation approved by the House this week, the bulk of the bill is dedicated to restoring confidence in the government-sponsored lenders Freddie Mac and Fannie Mae. But the measure also includes some help for an estimated 400,000 homeowners fending off foreclosure, as well as some tax breaks for those who don't need such emergency assistance.

A couple of the soon-to-be new laws, since Dubya has reversed his prior opposition and now says he will sign the bill as soon as it gets to his desk, include a tax credit for first-time homebuyers who meet certain income qualifications and a tax property tax write-off for taxpayers who claim the standard deduction.

The first-time homebuyer break would apply to folks who purchase or purchased a house between April 9, 2008, and July 1, 2009. These people would be eligible for a tax credit worth up to $7,500. The credit actually is more an interest free loan, as it would eventually have to be repaid to the Treasury. My colleague Holden Lewis takes a closer look at this credit in his Mortgage Matters blog today.

The property tax deduction -- $500 for single filers, $1,000 for couples filing jointly -- would help the millions of homeowners who currently don't get any tax benefit for these payments. Under current law, you can claim all your property taxes as a deduction but only if you itemize.

Homeowners who are paying mortgage interest usually do file Schedule A and claim their property taxes along with that interest. Many filers, however, find the standard deduction preferable, such as folks who have paid off their home loans but who still pay property taxes. They, until now, couldn't deduct.

Other tax breaks pending: While the public attention to the housing problems helped fast track the housing bill, another set of tax breaks is waiting for Congressional action.

Every year, some tax breaks expire. And every year, most of them are renewed, again for the short term.

Bankrate reader Paul knows all about this process. He writes:

"I have been looking for information on the sales tax deduction. In particular, is it going to be available for filing 2008 taxes? I found Kay Bell's article on the deduction, but it did not state whether it would be available for 2008. Thank you."

Thank you, Paul, for reading and writing. The answer to your question is "probably."

The sales-tax deduction, along with the above-the-line tuition and fees and educators classroom expenses deductions, are among the popular tax breaks that Congress has been promising for months that it will take care of.

We're still waiting.

I'm pretty confident that lawmakers will come through with these and other tax laws, such as patching the alternative minimum tax so that millions will not end up paying this expensive parallel tax. But I'd feel better if I saw it in writing as an official public law.

The smart move from campaign and administrative standpoints would be to extend these expired tax breaks sooner rather than later, but smart and Congress aren't always, or usually, used in the same sentence. If action isn't taken before Congress takes leaves for its pre-election break, look for the extenders to be handled in a lame duck session at the end of the year.

But it could be even later. Those procrastinators on Capitol Hill have been known to do things well after the fact and make the laws retroactive.

So if I had to bet, I'd bet the sales tax and other tax breaks will be extended. When? I'm not putting any money down on that one!