First Time Homebuyers Tax Credit Extended Into 2010!!

First Time Homebuyer Tax Credit Extended Into 2010! Plus...A New Tax Credit for Certain Existing Home Owners!

It's official. President Obama has signed a bill that extends the tax credit for first-time homebuyers (FTHBs) into the first half of 2010. This program had been scheduled to expire on November 30, 2009.

In addition to extending the tax credit of up to $8,000 through June 30, 2010, the extension measure also opens up opportunities for others who are not buying a home for the first time.

So Who Gets What? The program that has existed for FTHBs remains intact with the one exception that more people are now eligible based on an increase in the amount of income someone may now earn.

Additionally, the program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Deadlines In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.

Higher Income Caps in Effect The amount of income someone can earn and qualify for the full amount of the credit has been increased.

Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible.

Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.

Maximum Purchase Price Qualifying buyers may purchase a property with a maximum sales price of $800,000. First-Time Homebuyer Tax Credit – Frequently Asked QuestionsHere are answers to some commonly asked questions about the tax credit.
What is a tax credit? A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual's primary residence.

What is the tax credit for first-time homebuyers (FTHBs)? An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10% of the purchase price for a home. If the amount of the home purchased is $75,000, the maximum amount the credit can be is $7,500. If the amount of the home purchased is $100,000, the amount of the credit may not exceed $8,000.
Who is eligible for the FTHB tax credit? Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible. This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.

As mentioned above, the tax credit has been expanded so that existing homeowners who have owned and occupied a primary residence for a period of five consecutive years during the last eight years are now eligible for a tax credit of up to $6,500.

How do I claim the credit? For those taking advantage of the tax credit in 2009, you may choose to either apply for the credit with your 2009 tax return or you may apply for the credit sooner by filing an amended 2008 tax return with Form 5405 (http://www.irs.gov/pub/irs-pdf/f5405.pdf).

Can you claim the tax credit in advance of purchasing a property? No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.

Can a taxpayer claim a credit if the property is purchased from a seller with seller financing and the seller retains title to the property? Yes. In situations where the buyer purchases the property, even though the seller retains legal title, the taxpayer may file for the credit. Examples of this would include a land contract, contract for deed, etc. According to the IRS, factors that would demonstrate the ownership of the property would include: 1. the right of possession, 2. the right to obtain legal title upon full payment of the purchase price, 3. the right to construct improvements, 4. the obligation to pay property taxes, 5. the risk of loss, 6. the responsibility to insure the property and 7. the duty to maintain the property.

Are there other restrictions to taking the credit? Yes. According to the IRS, if any of the following describe your situation, a credit would not be due.

You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.

You do not use the home as your principal residence.

You sell your home before the end of the year.

You are a nonresident alien.

You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)

Your home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)

You owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2009, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2006, through July 1, 2009.

Can you buy a home from a step-relative and be eligible for the credit? Yes. Provided the person you are buying a home from is not a direct blood relative, the purchase would be allowed.
Can parent(s) who will not live in the property cosign for a mortgage for their child and the child that is a qualifying FTHB still be eligible for the credit? Yes.

Can a separated spouse who has not owned a home for four years qualify for the FTHB tax credit if the spouse has owned a property anytime in the last three years? No. However, the spouse may be eligible for the repeat buyer credit. The best path to take in any situation regarding income taxes is to speak with a professional tax preparer or CPA.

If you have any questions that fall outside the situations here, give me a call and if you do not have an accountant to speak with, I can refer you to one.

FHA Borrowers May Soon Be Able To Use $8000 Tax Credit at Closing

The details are still a bit unclear as to how the program will be implemented. However, HUD Secretary Shaun Donovan announced this past week that first-time buyers using FHA loans would soon be allowed to "monetize" the $8,000 federal first-time buyer tax credit and use the funds for their down payment.
"We, like you, believe that this new tax credit is not only a tremendous opportunity for first-time home buyers, but also an enormous benefit for communities struggling to deal with an oversupply of housing.
We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a down payment. So FHA will permit trusted FHA-approved lenders and HUD-approved nonprofits, as well as state and local governmental entities to "monetize" the tax credit through short-term bridge loans. We think the policy is a real win for everyone, ensuring that borrowers can tap into the numerous organizations that are already part of the FHA network to receive this additional benefit," Donovan told attendees at the National Association of Realtors, Real Estate Summit in Washington.
As mentioned, the details of the program still haven't been announced, but the revised policy seems to offer a benefit to potential first time home buyers without the full down payment for the purchase of a home.
The policy should help boost the housing market by allowing first-time buyers using FHA loans to stretch their dollar by using the federal credit at settlement as part of their closing funds, rather than waiting months for a refund on a tax return. "This allows them to solve the 'chicken or the egg' question: the promised tax credit or the closing" that allows them to get the money, said Rob Dietz, director of tax issues of the National Association of Home Builders, adding: "They have a right to this credit amount as a first-time buyer. It makes sense to turn this credit into their home equity."
Still two questions remain unanswered: Will first-time home buyers be able to monetize the tax credit using any FHA-approved lender? Or will they need to be working with a state housing finance agency, which usually requires additional documentation and provides financial and homeownership counseling to those who qualify for their help?
"We will attempt to answer those questions once we've published our mortagee letter," HUD spokesman Brian E. Sullivan said.
If buyers could monetize the tax credit, they would essentially receive a short-term bridge loan for the amount of the credit (which could vary based on their income and the home's sales price). They could apply that money to their down payment or as additional equity in their home. For buyers working with a state housing finance agency, the monetized tax credit often becomes a "soft" second mortgage, which they must pay back once they receive their tax refund.
Dietz added that," There's no doubt that the purpose of the tax credit is to stimulate housing demand. We estimate new and existing home sales will increase by 160,000. But it's not a tax credit that is in anyway large enough to reinflate the market-it's just a useful and limited tool to smooth out the market," he said.
"As for causing sales to return to 2005 levels or push prices up, this tax credit is not capable of doing that."
As the details of the new program and the mortgage letter from FHA are published we will provide additional information and details. The final version of this program will tell the story of whether or not this will be a program that enables first time buyers an option to purchase a home and truly take advantage of the $8,000 home buyer tax credit at closing. www.thomasdavisgroup.com