While the Act provided much-needed relief and incentives for homeowners, it also introduced
complexities in the tax landscape, particularly concerning capital gains tax implications and
depreciation recapture risks.
These complexities arise in divorce, where one spouse moves into an existing rental property as their
primary residence and later sells the property. This article explores the Housing Assistance Tax Act of
2008, its impact on capital gains tax rules, and the potential tax risks for divorced spouses transitioning
rental properties into primary residences.
Overview of the Housing Assistance Tax Act of 2008
The Housing Assistance Tax Act of 2008 was a significant legislation with various provisions to
stabilize the housing market. Key components of the Act included:
Property Tax Deduction for Non-Itemizers: This provision allows homeowners who do not itemize
their deductions to claim a standard deduction for state and local property taxes.
Discharge of Indebtedness on Principal Residence: It excluded any discharge of qualified principal
residence indebtedness from income, providing relief to homeowners who had forgiven mortgage
debt.
Capital Gains Tax on Home Sales: Changes to capital gains tax rules for homes converted from
rental properties to primary residences were also introduced, affecting the tax treatment of gains
on the sale of such properties.
THE HOUSING ASSISTANCE
TAX ACT OF 2008
The Housing Assistance Tax Act of 2008 was
enacted to address the housing crisis that emerged
in the mid-2000s. This comprehensive legislation
aimed to stabilize the housing market, assist
homeowners facing foreclosure, and promote
homeownership through various tax incentives and
provisions.
AND POTENTIAL CAPITAL GAINS TAX RISKS IN DIVORCE
Written by Jody Bruns, President Divorce Lending Association
05 DIVORCE REAL ESTATE & MORTGAGE JOURNAL