Article by Joseph N. DuCanto, J.D.1

The sale of personal residence has hit a solid wall! Stories abound of home sellers reducing substantially the asking prices for their homes which still languish unsold for well over a year and, in some cases, two or more. It's so serious that Congress sought fit to respond by way of enacting the Housing Assistance Tax Act of 2008, granting to qualified first-time home buyers up to $7,500 of tax credit, utilizable against future income. The Act is very complicated and the IRS recently released a bulletin (2008-106) which goes into substantial detail respecting application of the Act and its numerous conditions and limitations.

Among the notable limitations is that the credits begin to phase out at $75,000 for a single taxpayer and $150,000 for a married couple filing jointly. Additionally, sales between family members and close family members are disqualified for the credit.

While called a "credit," what we really have here is an interest-free loan which is to be repaid ratably over 15 years. Thus, one who obtains the full credit of $7,500 must add $500 in additional taxes for each tax year for 15 years, with no seeming ability to accelerate and payoff at an earlier or faster timeframe. Fortunately, any unpaid portion of the "loan" is forgiven upon death of the individual who procured the loan. The balance of the loan also becomes due upon sale of the home or cessation of its use as a principal residence. If a transfer is made to a spouse in the context of divorce, the transferee is responsible for making all subsequent installment payments.

No brief treatment of this subject matter is truly possible and one should read the revenue ruling and/or seek a tax practitioner's advice when contemplating utilization of this new tax benefit.

Footnote

1. Joseph N. DuCanto, 2009.© Joseph N. DuCanto is a graduate of the Law School of the University of Chicago, and is an attorney and partner in the Chicago, Illinois law firm of Schiller, DuCanto and Fleck, a firm which limits its practice to Family Law. Mr. DuCanto, after over 50 years as a member of the Bar, is a nationally recognized expert in the area of Tax, Financial and Estate Planning in Family Law matters, is a frequent lecturer to Bar groups and a guest lecturer at numerous law schools throughout the nation. In 2003 Mr. DuCanto was named a "Laureate of the Illinois State Bar Association in recognition of his significant contribution to the legal profession as well as to the public good. He founded Securatex, Ltd. in 1982, a private security provider, and currently serves as Chairman of the Board. He is a long-time member of the American Society of Industrial Security (ASIS) and has served as a training officer with respect to legal matters for a number of Illinois police agencies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.