Gerald M. Levinson on the Massive Housing and Economic Recovery Act of 2008
Tax Attorney and Founder of Benefits Research & Communications in Escondido, California
The Housing and Economic Recovery Act of 2008 (the Act) was enacted to help resolve the nations economic and housing crisis. It provides tax and real estate incentives to help stimulate the economy and assist homeowners. In this commentary, Gerald M. Levinson examines the Act’s provisions and highlights the criticism leveled at the Act. He writes:
To help reduce the existing supply of unoccupied housing, the Act in effect gives certain home purchasers an interest-free loan by amending the Internal Revenue Code (IRC) to allow first-time homebuyers a refundable tax credit. The amount of the credit equals the lesser of $7,500 ($3,750 for a married individual filing separately) or 10% of the purchase price of a principal residence, and is allowed for the tax year in which the taxpayer buys the home. The credit phases out for individual taxpayers with modified adjusted gross income between $75,000 and $95,000 ($150,000-$170,000 for joint filers) for the year of purchase.
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To somewhat level the playing field between taxpayers who take the standard deduction and those who itemize, the Act provides a standard deduction up to $500 for single filers and $1,000 for joint filers for the 28.3 million non-itemizers who pay property taxes. Prior to this change, only those who itemized deductions on their federal tax returns were entitled to deduct state and local property taxes from their income. This provision applies only for 2008.
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To ensure that communities can mitigate the harmful effects of foreclosures, the Act provides that $3.92 billion in supplemental Community Development Block Grant Funds will be make available to communities hardest hit by foreclosures and delinquencies for the redevelopment of abandoned and foreclosed upon homes and residential properties. The amounts will be allocated to state and local governments according to a funding formula that’s designed to assure funds are distributed to governments with the greatest need. The formula must be established within 60 days of enactment, and must be based on (1) the number and percentage of home foreclosures in each state or unit of general local government; (2) the number and percentage of homes financed by a subprime mortgage-related loan in each state or local unit, and (3) the number and percentage of homes in default or delinquency in each state or local governmental unit.
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Some of the criticism leveled at H.R. 3221 focused on the fact that, while the measure would temporarily help some homeowners avoid foreclosure, it does little or nothing to help those who aren’t in jeopardy of losing their homes, but whose equity in their homesteads--once relied upon for retirement or that rainy day--has evaporated. Other critics disparaged specific bill provisions, for instance the HOPE for Homeowners Program, which is supposed to help homeowners sidestep foreclosure. Because the system is voluntary, the bills detractors speculate that banks may be in no hurry to deal with desperate homeowners, and may wait until they’re on the very brink of losing everything before they act, if at all.