Today President Bush signed the Housing and Economic Recovery Act of 2008. The eagerly anticipated housing-rescue law is intended to calm the mortgage market, the real estate market, homeowners on the verge of bankruptcy and foreclosure, victims of bank failures and others whose lives are topsy-turvy this year.

But from a tax perspective, the bill is likely to cause more upset than calm. Here is a look at four areas where tax law was changed along with housing law:

1. Tax credit for new homeowners

The housing act gives first-time homebuyers nationwide a temporary refundable tax credit equal to 10 percent of the purchase price of a home, up to $7,500 ($3,750 for married individuals filing separately) The credit begins to phase out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return).The credit is effective for homes purchased on or after April 9, 2008, and before July 1, 2009. If you buy the home in 2009, before July 1, 2009, you can make an election to report the purchase on your 2008 tax return and get the refund a year early.

Unlike other credits, however, the first-time homebuyer credit must be repaid in equal installments over 15 years, essentially making it an interest free loan from the government for most qualifying homeowners.

In other words, if you bought a home in August 2008, you start paying back 6.667% of the original credit on your 2010 tax return. This credit applies to purchases of new homes on or before April 9, 2008 and before July 1, 2009.

As a refundable credit, even if your total tax liability is zero, you can file to get a refund. Therefore, people who normally don’t have to file tax returns will need to start filing tax returns just to pay the credit back. You can expect IRS computers to track this and to issue notices for unfiled returns. If you sell the house in less than 15 years, you will have to repay the rest of the credit immediately. Only people who have not owned a principal residence for three years before buying the new home qualify. If you’ve owned a vacation home or timeshare, you will still qualify.

2. New standard deduction rules

Currently, only individuals who itemize deductions may deduct real property taxes imposed by state and local governments. The new law gives non-itemizers a limited deduction for state and local real property taxes by increasing the amount of their standard deduction by the lesser of: (1) The amount of real property taxes paid during the year, or (2) $500 ($1,000 for a married couple filing jointly). This temporary deduction is available only for 2008. Taxpayers most likely to benefit from this deduction include homeowners who have paid off their mortgage (and, therefore, no longer itemize interest payments) and lower-income homeowners (whose overall itemized deductions generally do not exceed their standard deduction). There are no income limits to this benefit.

3. Vacation-home hit

Gain from the sale of a principal residence home will no longer be excluded from gross income under Code Sec. 121 (the $250,000 ($500,000 for couples filing jointly) personal residence capital-gains-tax exclusion) for periods that the home was not used as the principal residence.

In the past, savvy taxpayers have played hopscotch, moving from home to vacation home to the next home, etc. and avoiding income taxes on the sale of each one. That free ride is at an end.

The personal resident exclusion is still good on your personal home. However, you’ll be paying taxes on the sale of your vacation home, or rental property converted to a home. The tax will be based on the amount of days the house was not a qualified personal residence divided by the total number of days you owned it. This ratio is multiplied by the amount of gain realized on the sale of the property. It’s not clear if their temporary absences will be considered a period of nonqualified use.

This new income inclusion rule applies to home sales after December 31, 2008, and, under a generous transition rule, is based only on nonqualified use periods that begin on or after January 1, 2009. So, if you’ve got a second house you want to sell tax-free in the next year or two — move into it before the end of this year.

4. Tighter tracking of credit card payments received by businesses

Under the new law, banks and other processors of merchant payment card transactions (credit and debit cards) will be required to report a merchant’s annual gross payment card receipts to the IRS (and to the merchant). The new law also requires reporting on third-party network transactions (such as ones used by many online retailers). In other words, IRS will get your business’ total merchant credit card gross revenue for the year. In the past, when the IRS wanted to get information from banks and merchant accounts, it was required going to a judge and getting a subpoena. With this new law in place, the IRS now has the information to step in and audit the business at any time.

Merchants and payment card processors have time to prepare. The new treatment is effective for sales made on or after January 1, 2011.

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