But watch out if you plan to make a vacation home your primary residence. By Peter Blank, Editor August 1, 2008 (Editor's Note: President Bush signed these provisions into law on Aug. 14.)Lawmakers slipped plenty of new tax breaks for real estate into newly enacted legislation that is intended to provide relief from the current mortgage crisis. Taxwriters have approved tax cuts worth $12.4 billion over 10 years, as well as tax increases to offset them.Filers who do not itemize deductions can deduct real estate taxes they paid in 2008 in addition to their standard deduction. The extra write-off is capped at $1,000 for marrieds and $500 for singles. But this break only lasts a short time: It is scheduled to expire after this year. Folks who itemize their deductions aren’t affected, unless the sum of their standard deduction and the special real estate tax deduction exceed their total itemized deductions. In that case, they will be better off with the enhanced standard deduction. Sponsored Content First-time home buyers get a tax credit of up to $7,500 for buying a main home after April 8, 2008, and before July 1, 2009. To be eligible, purchasers must not have owned a principal residence in the U.S. in the previous three years. The credit phases out between $150,000 and $170,000 of adjusted gross income for married couples and $75,000 to $95,000 for single filers. The tax credit is refundable to the extent it exceeds the buyer’s regular tax liability, but does not offset the alternative minimum tax. Home buyers in 2009 can make a special election to take the credit on their 2008 income tax returns. That may require the filing of an amended return for 2008. Advertisement But the credit is really only an interest-free loan from the government. The new law requires it to be recaptured evenly over a 15-year period, without any interest due, starting two years after the year the credit is claimed. Thus a first-time home buyer who claims a $7,500 tax credit for a purchase in 2008 must pay an extra $500 of income tax in 2010 and in later years. If the homeowner sells the residence before the credit is fully repaid, the seller is taxed that year on the lesser of the gain from the sale (if sold to an unrelated party) or the unrecaptured balance of the credit. The credits for low-income housing and fixing up old buildings are juicier: They now can offset the minimum tax. This rule applies to low-income projects that are put in service after 2007 and rehabilitation expenses incurred after 2007. Interest on more tax-free bonds is exempted from the minimum tax. This relief applies to bonds used for low-income housing and mortgages for veterans and low-incomers. This easing applies only to bonds that are issued after July 30, 2008. Victims of the 2005 hurricanes also get relief. Those whose casualty losses were later reimbursed can elect to report the funds as if they were received in 2005. This helps folks whose tax rate in 2005 is lower than in the year they were reimbursed. IRS will charge them only one year’s worth of interest. Remember that amended returns for 2005 are due by April 15, 2009. Advertisement Congress even gave a tax break to businesses that cannot benefit from 50% bonus depreciation: Firms can elect to accelerate the use of their minimum tax and R&D credit carryovers instead. Now turn to the two major revenue-raising provisions. Congress restricted a tax break for turning a second home into a main home: Some of the gain will be ineligible for the home-sale exclusion if the house is converted to personal use after 2008 and is later sold. The portion of the profit that’s taxed is based on the ratio of the time after 2008 when the home was used as a second residence or rented out to the total time that the seller owned the house. The rest of the gain remains eligible for the home-sale exclusion of up to $500,000 if you owned and used the house as your primary residence for two out of the five years prior to selling it. This tightening may not bite you too badly if you owned the house for many years before converting it. For example, if you owned a vacation home for 18 years and make it your main residence in 2009 for two years before selling it, only 10% of the gain is taxed. The rest qualifies for the exclusion of up to $500,000. Homes owned for a short time prior to a post-2008 conversion fare the worst taxwise. And you can completely avoid the tax hit by converting before Jan. 1, 2009. Nor does the tightening apply if you turn a primary home into a vacation home. You can still exclude up to $500,000 of profit on the sale of the house if you owned it and used it as your principal residence for two years in the five years before the sale. Congress also gave IRS the ability to sniff out unreported income of businesses. Credit card issuers will have to file 1099s on payments to merchants, starting with payments for 2011. This also applies to payments by debit card issuers and third-party networks, such as PayPal. The delayed effective date gives issuers time to gear up their computers. IRS will then match the 1099s with merchants’ tax returns. There is a special reporting threshold for third-party networks: 1099s will be required only for payees who receive at least $20,000 in payments during a calendar year or participate in 200 or more sales transactions annually. There is no minimum threshold for credit card or debit card payments. If a merchant does not supply a valid tax identification number, 28% backup withholding is required from payments starting in 2012. For weekly updates on topics to improve your business decisionmaking, click here.