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Michael Gray, CPA's

Real Estate Tax Letter

February 8, 2008

© 2008 by Michael C. Gray
ISSN 1930-0387

A monthly report focusing on tax issues for the homeowner and real estate investor.

Congress passes Recovery Legislation

Congress passed "The Economic Stimulus Act of 2008" (H.R. 5140) yesterday. President Bush says he will sign the Act next week.

The Act is more similar to the House proposal than the Senate proposal, but a reduced rebate is being extended to disabled veterans and taxpayers receiving Social Security benefits.

Rebate for individuals. The tax rebate will generally be the lesser of the (1) 2008 income tax liability or (2) $600 for single persons and $1,200 for married persons filing a joint return. It will be phased out based on 5% of adjusted gross income exceeding $75,000 for singles, $150,000 for married, filing separately.

The credit will be at least $300 ($600 for a joint return) when the taxpayer (1) has qualifying income of at least $3,000 or (2) has at least $1 of net income tax liability and gross income which is greater than the sum of the basic standard deduction ($10,900 joint, $5,450 married separate, $8,000 head of household, $5,450 singles) plus the exemption amount ($3,500) or twice the exemption amount for a joint return. Qualifying income includes earned income, social security benefits and federal disability benefits for veterans.

There is also a $300 per child rebate for qualifying children of a taxpayer.

The rebate will be paid in advance based on the facts on the 2007 federal income tax return, but not for income tax returns filed after December 31, 2008. Then the rebate will be recomputed based on the information on the 2008 income tax return. The taxpayer will not be required to repay any advance amount paid over the recomputed amount.

Only individuals with a valid social security number will qualify for the credit. Non-resident aliens and illegal aliens aren’t eligible.

Temporary increase in federal "conforming" lending limits. The legislation includes an increase of the lending caps for U.S. government-insured loans from $417,000 to a temporary maximum for 2008 of $729,750, with lower limits applying to less expensive areas. (For example, the $729,750 limit would apply our area of San Jose-Sunnyvale-Santa Clara, Los Angeles, and San Diego but not to Sacramento or Riverside.) The limits apply to Federal National Mortgage Association (Fannie Mae) and Federal National Mortgage Charter Act (Freddie Mac) mortgages and also to Federal Housing Association (FHA) mortgages.

The increase in lending limits should make it easier for homeowners to refinance their mortgages in high cost areas. However, all major lenders have decreased their lending limits for any given property because of the increase in defaults. As a mortgage broker, I can tell you that even conforming rates have skyrocketed recently, partially in anticipation of the changes in limits just passed by Congress. Individuals applying for smaller loans may actually find interest rates increase as they compete with others applying for larger loans.

Expensing limit increased for 2008. The limit for businesses to expense equipment is being increased from $128,000 to $250,000 for property placed in service during 2008. The level where the expense election is phased out is increased from $510,000 to $800,000 for 2008.

Bonus depreciation restored for 2008. 50% bonus depreciation that was enacted after September 10, 2001 and expired January 1, 2005 is restored for business equipment purchased during 2008.

P.S. Michael Gray was interviewed relating to the “mortgage meltdown” on KGO-AM radio from 11 p.m. to midnight on Wednesday February 6. (The interview was rescheduled from the time we originally announced.) You can download an mp3 file of the interview for the next few days at www.kgoam810.com/Article.asp?PT=Archive&id=49920.


Michael Gray regrets he can no longer personally answer email questions. He will answer selected questions in this newsletter.

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IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this communication was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.

Michael Gray, CPA's February 2008 special report on The Economic Stimulus Act of 2008.

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Michael Gray, CPA
2190 Stokes St., Suite 102
San Jose, California 95128-4512
(408) 918-3162
Fax (408) 998-2766
email: mgray@taxtrimmers.com
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