According to the Associated Press,

The Treasury Department asked Congress to give it sweeping power to buy up toxic debt that has unhinged Wall Street. President Bush authorized Treasury to tap up to $50 billion from a Depression-era fund to insure the holdings of eligible money market mutual funds.

“This staves off Judgment Day,” said Anthony Sabino, professor of law and business at St. John’s University. “This is a detox for banks, and will help cleanse themselves of the bad mortgage securities, loans and everything else that has hurt them.”

The roots of the current crisis can be traced to lax lending for home mortgages — especially subprime loans given to borrowers with tarnished credit — during the housing boom. Lenders and borrowers were counting on home prices to keep zooming upward. But when the housing market went bust, home prices plummeted. Foreclosures spiked as people were left owing more on their mortgage than their home was worth. Rising mortgage rates also clobbered some homeowners.

So, what does this mean to us….? We still have to deal with the correction in the real estate market, but if credit lightens a bit, and banks become stronger, refinancing from bad deals will occur, and the economy can begin its correction.

On July 30, 2008, George W. Bush signed into law the Housing Assistance Act of 2008. Many think that this bill only deals with mortgage bailouts, but it is more expansive than that, and may actually affect many of you. Here are some of the key points (that do not include corporation givebacks—just the individual items)

• Property Tax Deduction For 2008 ONLY, a “real property tax deduction” is added to the standard deduction for non itemizers. What does that mean? For those who do not itemize (like senior citizens whose mortgages are paid off) and also own real estate, an additional deduction is added to the standard deduction up to $500 ($1000 for taxpayers filing jointly). This is effective for tax year 2008 ONLY.
• Refundable Credit for First Time Homebuyers: First time homebuyers are allowed a “refundable” tax credit for the purchase of a principal residence equal to the lesser of $7500 or 10% of the homes purchase price. (There are phase out provisions). So, whati s a first time homebuyer? It is an individual who has no present ownership in a principal residence during the three year period ending on the date of the purchase of the new home (nor may his or her spouse have had ownership). So what is the catch…: Those who claim the first time homebuyer credit are subject to “recapture” or paying it back with an increase in tax for the next 15 years (at 6 2/3 % per year). This is effective for principal residences purchased by the taxpayer after April 8, 2008 and is only good for purchases up to June 30l, 2009).
• Exclusion of Capital Gain from Sale of Residence!! Big nasty change! Currently, taxpayers are allowed to exclude up to $250,000 ($500,000 on a joint return) of the gain associated with the sale of their principal residence if they owned and occupied the property for 2 of the 5 years preceding the sale. The new law now changes this….Taxpayers will not be allowed to exclude any gain attributable to a “non qualified use”, even if they meet the 2 of 5 years rule. So, for example, if you rent your home because you were transferred and you are waiting for a market rebound prior to selling, even if you meet the 2 of 5 year rule, that gain is now taxable (There is a complicated formula for figuring this out). The law does not talk about any period before January 1, 2009, so it is effective for sales and exchanges after December 31, 2008.
• Mortgage Bonds: Mortgage revenue bonds are tax exempt from federal income tax and will be used to provide some of the funding to refinance subprime mortgages.

There are a host of other items such as Alternative Minimum Tax for low income housing, state allocations, etc. The biggie for business that accept credit cards is Financial Institution Reporting (where credit card companies will now have to report all credit card sales to the IRS beginning December 31, 2010.