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On October 8, the House of Representatives, by a vote of 416-0, approved H.R.3590, the “Service Members Home Ownership Tax Act of 2009.” The bill heads to the Senate for its consideration.

The bill would make the following changes to improve how the homebuyer credit and Homeowner's Assistance Program (HAP) provisions apply to service members (i.e., members of the uniformed services, members of the Foreign Service, and intelligence employees):

  • The tax credit claimed on qualifying first-time home purchases in 2009 must be recaptured if the home is sold (or ceased to be used as a principal residence) within three years of the purchase. A more restrictive recapture rule applies to qualifying first-home purchases in 2008. Sec. 2(a) of the bill would amend Code Sec. 36(f)(4) to provide that the first-time homebuyer credit does not need to be paid back if after Dec. 31, 2008, the home is sold (or stops being used as a principal residence) by a member of the uniformed services, a member of the U.S. Foreign Service, or an employee of the intelligence community, in connection with a government order for qualified official extended duty.

  • The first-time homebuyer credit won't be available for purchases after Nov. 30, 2009 (unless Congress extends this tax break). Sec. 3(a) of H.R. 3590 would amend Code Sec. 36(h) to provide those serving on qualified official extended duty service outside of the U.S. for at least 90 days in calendar year 2009 with an additional year (until Nov. 30, 2010) to buy a principal residence and be eligible for the first-time homebuyer credit (if otherwise qualified). Additionally, those buying a home after 2009 but before July 1, 2010 under the change would be able to elect to treat the home as bought on Dec. 31, 2009, in order to claim the credit on the 2009 return.

  • Sec. 4(a) of the bill would amend Code Sec. 132(n) to ensure that certain payments under HAP are exempt from tax. This would apply to HAP payments made after Feb. 17, 2009, to (1) wounded members (and their spouses) of the Armed Forces, Department of Defense, or the United States Coast Guard and (2) members of the Armed Forces that bought a home before July 1, 2006 and are subsequently permanently reassigned between July 1, 2006 and Sept. 30, 2012.
To pay for these expanded tax breaks, Sec. 5(a) of the bill would amend Code Sec. 6698(b)(1) and Code Sec. 6699(b)(1) to increase the penalties for failure to file a partnership return or an S corporation return. Effective for returns for tax years beginning after 2010, the penalty would be increased by $21 (from $89 to $110). Additionally, for corporations with at least $1 billion of assets, Sec. 6 of the bill would provide that estimated tax payments otherwise due in July, August, or September of 2014 would be increased by 0.5 percentage points.

Source: RIA Checkpoint Newsstand 10/9/09

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