Public Law H.R Joint Committee on Taxation Technical Explanation of Division C of H.R. 3221

Transcription

1 9/5/2008 Housing Assistance Tax Act of 2008 Public Law H.R Joint Committee on Taxation Technical Explanation of Division C of H.R H.R. 3221, the Housing and Economic Recovery Act of 2008, was signed into law by the President on July 30, Division C of H.R is called the Housing Assistance Tax Act of 2008, and contains numerous tax-related provisions. The following is our coverage of the tax-related provisions that will be included in the 2008 tax year edition of TheTaxBook. First-Time Homebuyer Credit TheTaxBook 2007 Tax Year 1040 Edition, page 1-7. The first-time homebuyer credit for the District of Columbia no longer applies for property purchased after The credit allowed first-time homebuyers of a principal residence in the District of Columbia a tax credit of up to $5,000. The credit began to phase-out for taxpayers with AGI in excess of $70,000 ($110,000 MFJ). The DC first-time homebuyer credit was one of several tax provisions designed to help taxpayers located in the District of Columbia Enterprise Zone. New first-time homebuyer credit. A new version of the DC first-time homebuyer credit now applies to individuals in all areas of the U.S. who purchase a home on or after April 9, 2008 and before July 1, 2009, if the buyer has had no ownership interest in a principal residence in the United States during the 3-year period prior to the purchase of the home. The credit is no longer limited to homes purchased in the DC area. Author s Comment: This means a renter who owns a vacation home can purchase a principal residence and qualify for the credit since the 3-year look back period for owning a home only applies to owning a principal residence. Credit amount. The credit is a refundable tax credit (meaning the money is refunded to the taxpayer even if the tax liability is otherwise zero). The credit is equal to the lesser of $7,500 ($3,750 MFS) or 10% of the purchase price of the principal residence. The credit is taken in the year the taxpayer purchases the home. Purchase date. The date of purchase is the date title closes. If the taxpayer constructs the residence, the date of purchase is the date the taxpayer first occupies the residence.

2 Election to treat as a 2008 purchase. A taxpayer may elect to treat a home purchased in the eligible period in 2009 as if purchased on December 31, 2008 for purposes of claiming the credit on the 2008 tax return and for establishing the beginning of the recapture period. If a taxpayer files a 2008 return, and then later purchases a home in 2009 that qualifies for the credit, the taxpayer may amend his or her 2008 return to make this election. AGI phase-out. The credit phases out for individual taxpayers with modified AGI between $75,000 and $95,000 ($150,000 to $170,000 for MFJ) for the year of purchase. Recapture of credit. The credit is recaptured ratably over 15-years with no interest charged beginning in the second tax year after the year in which the home is purchased. Example #1: Mark and Mary are U.S. citizens and move back to the United States after spending 10 years operating a business in China. They purchase a home that will be their principal residence in Minneapolis, MN on August 8, The purchase price is $150,000. They claim a refundable tax credit of $7,500 on their MFJ 2008 Form 1040 (the lesser of $7,500 or 10% of $150,000). They must begin to repay $500 per year ($7,500 15) back to the government starting with their 2010 tax return. No interest is charged on the $7,500. Thus, the $7,500 refundable credit is treated as an interest free loan. Disposition of property. No credit is allowed if the taxpayer disposes of the residence, or the residence ceases to be a principal residence, before the close of the tax year for which the credit is otherwise allowed. If the taxpayer sells the home, or the home ceases to be used as the principal residence in a year after the year of purchase but prior to the end of the 15-year payback period, any remaining amount must be repaid on the tax return for the year in which the home is sold, or ceases to be used as the principal residence. However, the repayment amount may not exceed the amount of gain from the sale of the residence to an unrelated person. Gain for this purpose is determined by reducing the basis of the residence by the amount of the credit to the extent not previously recaptured. Example #2: Assume same facts as example #1 above. Assume that in the year 2012, Mark and Mary sell their home for $148,000 and move back to China. No improvements were made to the home or any other adjustments to basis. They repaid $500 of the credit back to the government each year on their 2010 and 2011 tax returns ($1,000 total repayment prior to the sale). Basis in the home prior to the sale is $143,500 ($150,000 minus $7,500 plus $1,000). Gain on the sale is $4,500 ($148,000 minus $143,500). Their recapture amount that must be reported on their 2012 Form 1040 is the lesser of $6,500 ($7,500 original credit minus $1,000 in repayments), or their gain of $4,500 on the sale of the home. Death of taxpayer. No amount is recaptured after the death of a taxpayer.

3 Divorce. If the home is transferred to a spouse or former spouse incident to a divorce, the spouse who receives the home (and not the one who transferred the home) is responsible for any future recapture. Related party purchase. Property acquired from a related person does not qualify for the credit. A person is treated as a related person if the relationship would result in the disallowance of losses under Section 267 or 707(b). In applying section 267(b) and (c) for purposes of this rule, paragraph (4) of Section 267(c) is treated as providing that the family of an individual shall include only his or her spouse, ancestors, and lineal descendants. Involuntary conversion. The recapture rule on the disposition of the home is not required if the home is involuntarily converted, provided a new principal residence is acquired within the 2-year replacement period for tax-free involuntary conversions. Nonresident alien. No credit is allowed if the taxpayer is a nonresident alien. Gift or inheritance. Acquired property through gift or inheritance is not considered to be purchased, and therefore does not qualify for the credit. Tax-exempt mortgage revenue bonds. No credit is allowed if the taxpayer s financing is from tax-exempt mortgage revenue bonds. DC homebuyer credit. No credit is allowed if the DC homebuyer credit is allowable for the taxable year the residence is purchased or a prior taxable year. Author s Comment: As mentioned above, the DC homebuyer credit no longer applies for homes purchased after 2007, which would seem to make this rule a moot point. However, experts think this was inserted in case future tax law extends the DC homebuyer credit to Standard Deduction for State and Local Real Property Taxes TheTaxBook 2007 Tax Year 1040 Edition, page 4-10 and front cover. State and local real estate taxes are deductible as itemized deductions on Schedule A, Form Taxpayers generally deduct the larger of their itemized deductions or the standard deduction. New Law. For tax years beginning in 2008 only, an individual taxpayer s standard deduction for a taxable year is increased by the lesser of: The amount allowable to the taxpayer as a deduction for state and local real estate taxes, or $500 ($1,000 MFJ).

4 The increased standard deduction is determined by taking into account real estate taxes for which a deduction is allowable to the taxpayer under Section 164 and, in the case of a tenant-stockholder in a cooperative housing corporation, real estate taxes for which a deduction is allowable to the taxpayer under Section 216. No taxes deductible in computing adjusted gross income are taken into account in computing the increased standard deduction. Example: Karen is a self employed bookkeeper, files a joint return with her husband, and reports her business income on Schedule C as a sole proprietor. She operates her business out of a home office and qualifies to deduct 10% of her home operating expenses on Form 8829, Expenses for Business use of Your Home. For 2008 her total real estate taxes equals $1,000. Her deduction on Form 8829 for real estate taxes equals $100 (10% of $1,000). Assume her net income from Schedule C is high enough to allow all deductions claimed on Form Since $100 of her real estate taxes are deducted in computing her adjusted gross income, the amount taken into account in computing her increased standard deduction for 2008 is $900 ($1,000 minus $100). Exclusion of Gain on Sale of a Principal Residence TheTaxBook 2007 Tax Year 1040 Edition, page A taxpayer can exclude up to $250,000 ($500,000 MFJ) of gain on the sale of a home if the taxpayer: Owned the home for at least two years during the five-year period ending on the date of sale, Used the home as a principal residence for at least two years during the five-year period ending on the date of sale, and Did not exclude gain from the sale of another home during the two-year period ending on the date of sale. If the taxpayer used the home for business or rental, the exclusion rules will apply to the entire home, including the portion of the home used for business or rental, if the ownership and use rules above are met, and one of the following is true: A portion of a home is used for business, such as a home office or room rental, the business portion of the home is within the same structure as the taxpayer s primary residence, and the taxpayer otherwise qualifies for the exclusion of gain on the portion of the home that is used as a primary residence. A separate structure is used for business, such as a rental house, vacation home, storage building, duplex apartment, farm building, etc., and the separate structure is used as a primary residence for any of at least two years during the five-year period prior to the sale. If either of the above scenarios is true, the exclusion applies to the entire property, except for the part of the gain equal to depreciation allowed or allowable after May 6, 1997.

5 New Law. Gain from the sale of a principal residence after December 31, 2008, that is allocated to periods of nonqualified use cannot be excluded from gross income. The amount of gain allocated to periods of nonqualified use is the amount of gain multiplied by the following fraction: Numerator: Equals the aggregate periods of nonqualified use during the period the property was owned by the taxpayer. Denominator: Equals the period the taxpayer owned the property. Nonqualified use. The term period of nonqualified use means any period (other than the portion of any period preceding January 1, 2009) during which the property is not used as the principal residence of the taxpayer or the taxpayer's spouse or former spouse. Exceptions. The term period of nonqualified use does not include: Any portion of the 5-year period ending on the date of sale which is after the last date that such property is used as the principal residence of the taxpayer or the taxpayer's spouse, Any period (not to exceed an aggregate period of 10 years) during which the taxpayer or the taxpayer's spouse is serving on qualified official extended duty as a member of the uniformed services, the Foreign Service, an employee of the intelligence community, or as a Peace Corps volunteer, and Any other period of temporary absence (not to exceed an aggregate period of 2 years) due to change of employment, health conditions, or such other unforeseen circumstances as may be specified by the IRS through regulations. Post May 6, 1997 depreciation. If any gain is attributable to post-may 6, 1997, depreciation, the exclusion does not apply to that amount of gain, as under present law, and that gain is not taken into account in determining the amount of gain allocated to nonqualified use. Examples. The following two examples are provided by the Joint Committee on Taxation Technical Explanation of Division C of H.R. 3221: Example #1: Bill buys property on January 1, 2009, for $400,000, and uses it as rental property for two years claiming $20,000 of depreciation deductions. On January 1, 2011, Bill converts the property to his principal residence. On January 1, 2013, Bill moves out, and sells the property for $700,000 on January 1, As under present law, $20,000 gain attributable to the depreciation deductions is included in income. Of the remaining $300,000 gain, 40% of the gain (2 years divided by 5 years), or $120,000, is allocated to nonqualified use and is not eligible for the exclusion. Since the remaining gain of $180,000 is less than $250,000 (the maximum Section 121 exclusion), gain of $180,000 is excluded from Bill s gross income.

6 Example #2: Todd buys a principal residence on January 1, 2009, for $400,000, moves out on January 1, 2019, and on December 1, 2021 sells the property for $600,000. The entire $200,000 gain is excluded from gross income, as under present law, because periods after the last qualified use do not constitute nonqualified use. Author s Comment: Example #1 above does not say how Bill used the during the rest of 2013 after moving out, and Example #2 does not say how Todd used the property during the years 2019, 2020, and 2021 after moving out. Apparently under the new law, it can sit vacant, be used as rental property, or for any other purpose and not be counted as a period of nonqualified use. Thus, as long as the 2 out of 5 year test period for ownership and use as a principal residence is met, no time after the taxpayer moves out of the residence will be counted as nonqualified use. Only the period of time prior to using the home as a principal residence counts as nonqualified use, unless one of the other two exceptions applies. Author s Comment: It appears the focus of this new law is aimed at closing the loophole for taxpayers with vacation homes and rental property. Under the old rules, a taxpayer could exclude gain by moving into their vacation home or rental property, treat it as their principal residence for two years, and then sell the property. The new law closes this loophole. However, the new law does not change the rule that allows taxpayers to move out of their principal residence, rent the home or use it as a vacation home for up to 3 years, then sell the property and still qualify for the full exclusion. Author s Comment: Neither the code nor the Joint Committee on Taxation Technical Explanation of Division C of H.R explains how to treat a home office where the taxpayer uses a portion of the residence as a principal residence and a portion for business. Under Regulation Section (e)(1) and example (5) of Regulation Section (e)(4), no allocation between business use and use as a principal residence is required if both the residential and non-residential portion of the property are within the same dwelling unit, with the exception of post May 6, 1997 depreciation. Thus, the regulations treat a home office within the same dwelling unit as the principal residence as if 100% of the home is used as the principal residence. Will this same rule carry over to the new law so that an office in home within the same dwelling unit is treated as qualified use? Or will an allocation between business and non-business use be required, as was the rule prior to the issuance of the final regulations? We will have to wait for IRS guidance on this issue before knowing one way or the other. Alternative Minimum Tax (AMT) Interest from private activity bonds. TheTaxBook 2007 Tax Year 1040 Edition, page Interest earned from private activity bonds is generally not subject to income tax. Interest earned on private activity bonds issued after August 7, 1986 must be added to income for AMT purposes.

7 Corporate AMT. TheTaxBook 2007 Tax Year Deluxe Edition, page 18-11, and the Small Business Edition, page SB2-11. Small C corporations with average annual gross receipts of $5 million or less are exempt from AMT. In the case of a larger C corporation that is subject to AMT, the corporation must make an Adjusted Current Earnings (ACE) adjustment in computing AMT. This adjustment based on current earnings is determined, in part, by taking into account 75% of items, including tax-exempt interest, that are excluded from taxable income but included in the corporation s earnings and profits. New Law. Tax-exempt interest earned on certain private activity bonds issued after July 30, 2008 is not added to income for AMT purposes if the interest is from: Exempt facility bonds issued as part of an issue 95% or more of the net proceeds of which are used to provide qualified residential rental projects, as defined in Section 142(d), Qualified mortgage bonds, as defined in Section 143(a), and Qualified veterans mortgage bonds, as defined in Section 143(b). This interest is also not included in the ACE adjustment for C corporations subject to AMT. This provision does not apply to interest on any refunding bond unless interest on the refunded bond was not a tax preference item for AMT purposes. General business credits. TheTaxBook 2007 Tax Year 1040 Edition, page 11-9, and the Small Business Edition, page SB9-2. Certain business tax credits such as the lowincome housing credit and rehabilitation credit may not exceed the excess of the taxpayer s income tax liability over the tentative minimum tax (or, if greater, 25% of the regular tax liability in excess of $25,000). Thus, business tax credits generally cannot offset AMT. This rule does not apply with respect to certain energy credits, the work opportunity credit, and the credit for employer Social Security and Medicare taxes paid on certain employee tips. Thus, these credits may be used to offset AMT. New Law. For low-income housing placed in service after December 31, 2007, and qualified rehabilitation expenses taken into account for periods after December 31, 2007, the tentative minimum tax is zero for purposes of determining the tax liability limitation with respect to the low-income housing credit and the rehabilitation credit. Thus, the lowincome housing tax credit and the rehabilitation credit may offset AMT liability. Election to Accelerate AMT and Research Credits in Lieu of Bonus Depreciation Under the Economic Stimulus Act of 2008, taxpayers are permitted an additional firstyear depreciation deduction equal to 50% of the adjusted basis of qualified property placed in service in This deduction is allowed for both regular tax and AMT purposes.

8 New Law. A C corporation otherwise eligible to claim the additional first-year depreciation deduction may elect to claim additional research or minimum tax credits in lieu of claiming the additional first-year depreciation for eligible qualified property placed in service after March 31, The increases in the allowable credits are treated as refundable credits. For details on how these rules apply, see the Technical Explanation of Division C of H.R. 3221, prepared by the Joint Committee on Taxation. Go Zone Incentives Casualty losses. TheTaxBook 2007 Tax Year 1040 Edition, page A casualty loss is the lesser of the basis in the property damaged or destroyed, or the reduction in FMV of the property due to the casualty. From this amount, subtract insurance or other reimbursements received. If a casualty loss is claimed in one year, and in a later year the taxpayer receives reimbursement for the loss, the deductible loss is not recomputed for the taxable year in which the deduction was taken. Rather, the reimbursement amount is included in income in the taxable year in which it was received. [Reg (d)(2)(iii)] New Law. In the case of a taxpayer who claimed a casualty loss to a principal residence resulting from Hurricane Katrina, Hurricane Rita, or Hurricane Wilma, and in a subsequent year received a grant as reimbursement of such loss, then the taxpayer may elect to file an amended return for the taxable year in which the loss was claimed rather than claim the income in the year received. The casualty loss deduction is reduced, but not below zero, by the amount of the reimbursement. The time limit for filing the amended return is three years after the original due date for filing the tax return the loss was claimed, or November 30, 2008, which ever date is later. Any underpayment of tax shall be subject to one year of interest, but no penalty or additional interest will apply if the tax on the amended return is paid no later than one year after the filing of the amended return. Special depreciation allowance. TheTaxBook 2007 Tax Year 1040 Edition, page 9-16, and the Small Business Edition, page SB5-16. Gulf opportunity zone property that is manufactured, constructed, or produced for the taxpayer s own use qualifies for the special first-year depreciation allowance of 50% if the manufacture, construction, or production began after August 27, 2005, and before January 1, 2008, and the placed in service date is before January 1, 2008 (January 1, 2011, in the case of qualifying nonresidential real property and residential rental property provided such property is manufactured, constructed, or produced before January 1, 2010). New law. The new law removes the requirement that the manufacture, construction, or production of nonresidential real property and residential rental property must begin before January 1, The placed in service date before January 1, 2011, and the completion of the manufacture, construction, or production before January 1, 2010 remains unchanged.

9 Example. ABC Corporation constructs nonresidential real property located in the gulf opportunity zone for its own use. Construction of the property begins on January 10, Construction is completed by December 31, The property is placed in service by December 31, Under the old law, the property did not qualify for the special depreciation allowance because construction began after December 31, Under the new law, the property qualifies for the special depreciation allowance. Credit Card Reporting For sales made on or after January 1, 2011, banks and other processors of credit and debit cards will be required to report a merchant s annual gross receipts from credit and debit card transactions to the IRS (and the merchant) on an information return, such as a The new law also applies to third-party network transactions, such as the ones used by many online retailers. This rule will allow the IRS to compare a merchant s overall volume of payment card sales in relation to expenses claimed and cash transactions reported. A de minimis exception applies if the aggregate value of third party network transactions does not exceed $20,000 for the year, or the aggregate number of transactions does not exceed 200. Low-Income Housing Credit TheTaxBook 2007 Tax Year 1040 Edition, page 11-10, and the Small Business Edition, page SB9-2. The low-income housing credit is available for qualified residential rental property placed in service after The credit can be claimed for property that meets certain requirements for low-income tenant occupancy. Rent restrictions apply. A low-income housing project must have state credit authority along with IRS certification. To be eligible for the credit, the property must fall under either the 20/50 rule (20% of the units are occupied by tenants with incomes 50% or less of the median area income), or the 40/60 rule (40% of units are occupied by tenants with income 60% or less of the median area income). The credit is taken over a 10-year period. The property must remain in compliance for a 15-year period. New Law. The new law makes the following changes to the low-income housing credit: Measurement of area median gross income for certain projects located in certain non-metropolitan areas. The 20/50 rule and 40/60 rule mentioned above is modified in the case of projects located in certain rural areas. The income targeting rules of the lowincome housing credit are applied by reference to the greater of the otherwise applicable area median gross income standard, or the national non-metropolitan median gross income. This new income targeting rule does not apply to buildings which do not require

10 a low-income housing credit allocation because they are substantially bond-financed, or buildings located in metropolitan areas. Treatment of Basic Housing Allowances for purposes of income eligibility rules. Current law requires the military basic housing allowance to be included in a tenant s income for purposes of determining whether the low-income housing project meets the 20/50 or 40/60 test rules mentioned above. The new law in general excludes the military basic housing allowance from income for purposes of the 20/50 or 40/60 test rules. This rule is limited to qualified buildings located: In any county which contains a qualified military installation to which the number of members of the Armed Forces assigned to units based out of such installation has increased by 20% or more as of June 1, 2008 over the personnel level on December 31, 2005, and Any counties adjacent to a county described above. For these purposes, a qualified military installation is any military installation or facility with at least 1,000 members of the Armed Forces assigned to it. Low-income housing credit volume limits. A low-income housing credit is allowable only if the owner of a qualified building receives a housing credit allocation from the State or local housing credit agency. The aggregate credit authority provided annually to each state has temporarily been increased from $2.00 per resident to $2.20 per resident. A minimum annual cap for certain small population states has also been temporarily increased by 10%. Modifications to the applicable percentage. The amount of the credit for any taxable year in the 10-year credit period is the applicable percentage of the qualified basis of each qualified low-income building. The applicable percentage has been temporarily changed to 9% for newly constructed non-federally subsidized buildings. Modification to the definition of a Federally subsidized building. If any portion of the eligible basis of a building is Federally subsidized, then the credit is reduced from 70% of the value of the building s qualified basis to 30%. The new law limits the definition of a Federally subsidized building to any obligation where the interest is exempt from tax under Section 103 (tax exempt state or local bonds). Thus, additional buildings may now become eligible for 70% credit. Modification to the enhanced credit for buildings in high-cost areas. The 70% and 30% credits are increased to 91% and 39% in the case of buildings located in two types of high-cost areas (qualified census tracts and difficult development areas). The new law adds a third type of high-cost area where the State housing credit agency designates a building as requiring the enhanced credit in order for such building to be financially feasible.

11 Modification to the substantial rehabilitation requirement. In general, rehabilitation expenditures with respect to a low-income building are treated as a separate building and may be eligible for the 70% credit if they satisfy other rules. To qualify for the credit, the rehabilitation expenditures must equal the greater of an amount that is: At least 10% of the adjusted basis of the building being rehabbed, or At least $3,000 per low-income unit in the building being rehabbed. The new law increases the minimum expenditure requirements. The rehabilitation expenditures must equal the greater of an amount that is: At least 20% of the adjusted basis of the building being rehabbed, or At least $6,000 per low-income unit in the building being rehabbed. Community service facility eligibility for the credit. In general, the qualified basis of a low-income building is limited to that portion of the building dedicated to qualified lowincome use. An exception applies to certain community service facilities used by nontenants of the low-income building when certain requirements are satisfied. A community service facility: Means any facility to serve primarily individuals whose income is 60% or less of area median income, and May not exceed 10% of the eligible basis of the qualified low-income housing credit project of which it is a part. The new law expands the size of the community service facility with respect to which the low-income housing credit may be claimed. The size of the community service facility may not exceed the sum of: 25% of so much of the eligible basis of the qualified low-income housing credit project of which it is a part as does not exceed $15 million, and 10% of any excess over $15 million of the eligible basis of the qualified low-income housing credit project of which it is a part. Modification to the definition of related persons. In addition to other rules, a building is not eligible for the low-income housing credit if it was acquired from a related party. For this purpose, the definition of related persons is the same as the definition used in Section 267(b) and Section 707(b)(1) with one modification. In determining whether two persons are related, 10% is substituted for 50% in determining the threshold level of ownership in certain partnerships and corporations. For example, two partnerships are related if the same persons own more than 10% of the capital interest or profits interest in each partnership. The new law repeals the 10% attribution rule used to determine whether parties are related for purposes of determining whether an existing building qualifies for the lowincome housing credit. Two persons are related for this purposes if they bear a

12 relationship to each other specified in Section 267(b) or Section 707(b)(1). For example, two partnerships are related if the same persons own more than 50% of the capital interest or profits interest in each partnership. Additions of energy efficiency and historic nature criteria to housing credit agency allocation plan criteria. Each state must develop a plan for allocating credits, and such plan must include certain allocation criteria including: Project location, Housing needs characteristics, Project characteristics, Sponsor characteristics, Tenant populations with special needs, Tenant populations of individuals with children, and Projects intended for eventual tenant ownership. The new law adds two additional criteria which States must use in its allocation of credits among potential low-income housing projects. The additional criteria are: The energy efficiency of the project, and The historic nature of the project, such as encouraging rehabilitation of certified historic structures. Treatment of individuals who previously received foster care assistance. In general, student housing does not qualify for the low-income housing credit. There are two exceptions to this rule. Units occupied by a student receiving assistance under title IV of the Social Security Act, or Units occupied by individuals enrolled in a job training program receiving assistance under the Job Training Partnership Act or under other similar Federal, State, or local laws. The new law provides for a third exception. This new exception applies in the case of a student who was previously under the care and placement responsibility of a foster care program under part B or E of title IV of the Social Security Act. Other provisions related to the low-income housing credit. The new law also contains the following low-income housing credit provisions: Clarifies certain issues related to the 15-year compliance period in the case where a taxpayer receives a Federal grant with respect to such property. Provides for a new exception to the 10-year rule in the case of a Federally or State assisted building.

13 Eliminates the present-law prohibition against providing the low-income housing credit to buildings receiving moderate rehabilitation assistance under Section 8(e)(2) of the United States Housing Act of A modification to the carryover allocation rules. Eliminates the bond posting requirements in the case of a change in ownership of a building subject to the compliance period. Clarifies that a building does not fail the general public use rule solely because there are occupancy restrictions or preferences in favor of tenants with special needs, or who are members of a specified group under a Federal or State program, or who are involved in artistic and literary activities. Modification to the rules concerning the refunding treatment for certain multi-family housing bonds. Coordination of certain rules applicable to the low-income housing credit and qualified residential rental project exempt facility bonds. Modification to the HUD hold harmless policy. Waiver of the annual recertification requirements under the low-income credit and tax-exempt bonds for any project as long as no residential unit in the project is occupied by tenants who fail to satisfy the otherwise applicable income limits (does not modify current HUD rules). Corporate Estimated Tax In the case of a corporation with assets of $1 billion or more, The Tax Increase Prevention and Reconciliation Act of 2005 increased the corporate estimated tax payments due in July, August, and September, 2012, to % of the payment otherwise due. The next required payment is reduced accordingly. The Small Business and Work Opportunity Tax Act of 2007 increased the corporate estimated tax payments due in July, August, and September, 2012, from % to % of the payment otherwise due. The next required payment is reduced accordingly. The Mortgage Forgiveness Debt Relief Act of 2007 increased the corporate estimated tax payments due in July, August, and September, 2012, from % to % of the payment otherwise due. The next required payment is reduced accordingly. The Heartland, Habitat, Harvest, and Horticulture Act of 2008 increases the corporate estimated tax payments due in July, August, and September, 2012, from % to 123.5% of the payment otherwise due. The next required payment is reduced accordingly. The Housing Assistance Tax Act of 2008 repeals all of the above tax law changes to the corporate tax payments due in July, August, and September of Thus, the general rule in which a corporation s required quarterly estimated tax payment is based on the corporations tax liability applies for the year 2012.

14 Instead, in the case of a corporation with assets of $1 billion or more, the Housing Assistance Tax Act of 2008 increases the corporate estimated tax payments due in July, August, and September, 2013, to % of the payment otherwise due. The next required payment is reduced accordingly. Other Tax Provisions The new law also contains the following tax provisions: Modifications to qualified private activity bond rules for housing under Sections 142, 143, and 146 of the Code. Bonds guaranteed by the Federal Home Loan Bank are not eligible for treatment as tax-exempt bonds under Section 149 of the Code. Modification of the rules pertaining to FIRPTA non-foreign affidavits under Section 1445 of the Code. Modification of the rehabilitation credit tax-exempt use safe harbor and definition of disqualified lease under Section 47 of the Code. Waiver of the first-time homebuyer requirement for residences located in Presidentially declared disaster areas for purposes of the special rules for mortgage revenue bonds and whether they qualify as private activity bonds under Section 143 of the Code. New reform rules related to Real Estate Investment Trusts (REITS). Added certain counties in the definition of the GO Zone for purposes of tax-exempt bond financing under Section 1400N(a) of the Code. A 2-year delay in the effective date and phase-in of the worldwide interest allocation rules that apply to certain affiliated groups of corporations and financial institutions for purposes of calculating foreign source income for the foreign tax credit limitations. Copyright 2008, Tax Materials, Inc.