Congress Extends Home Buyer Tax Credit Deadline

Congress late Wednesday night extended the deadline by three months of a popular home-buyer tax credit that has helped fuel the real estate market in recent months.

The extension is only for those buyers who signed a purchase contract by April 30 and need extra time to close their deals. The deadline to close was Wednesday and the extension will push that deadline to Sept. 30. The incentive offers up to $8,000 for certain buyers.

Real estate brokerage offices and mortgage lenders have been backlogged with the number of people trying to close their deals by the Wednesday deadline, according to the National Assn. of Realtors, a group that lobbied heavily for the extension. The group estimated that the extra time would assist some 180,000 people nationally and 17,700 Californians who qualify for the credit but did not appear as if they would meet the Wednesday deadline to close their deals.

The federal tax credit was created in 2008 by the Bush administration as a $7,500 incentive for first-time purchasers, who were required to repay the money in a series of installments. Congress increased the amount to $8,000 in February 2009 when it passed the economic stimulus package and waived the repayment requirement. As an initial deadline for the credit loomed last November, Congress extended and expanded it to include as much as $6,500 for some current homeowners.

The Realtors group in Washington estimates that a total of 4.4 million people have received the credit since it was made nonrefundable last year. That includes 2.9 million first-time buyers and 1.5 million repeat buyers, the group said.

Source: Alejandro Lazo (Los Angeles Times)


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Plenty of Reasons to Buy a Home even after the Tax Credit

Even though the home buyer tax credit expired on April 30, 2010 and won’t be renewed, there may never be a better time to buy a home than today, according to the National Association of Home Builders (NAHB). Many outstanding opportunities still exist for home buyers, but they may not be around forever.

“The home buyer tax credit was just one of many factors motivating Americans to buy homes,” said NAHB Chairman Bob Jones, a builder and developer in Bloomfield Hills, Mich. “But buyers can still take advantage of today’s low interest rates and competitive prices to get a home they may not have been able to purchase just a few years ago.”

Besides mortgage interest rates that have been hovering at near-record lows, homes in many markets have become more affordable. Prices have moderated from the highs of the housing boom that occurred in most of the country, especially in major markets where they had increased significantly.

Today’s new homes are also built to be much more energy efficient than homes constructed a generation ago, making them more affordable to operate. New homes are designed to support modern lifestyles with open floorplans, flexible spaces, improved safety features and low-maintenance materials.

Consumers who are thinking about buying a home should not count on interest rates or prices staying at current levels, however. Mortgage rates are sensitive to market conditions, and even a slight increase can push monthly payments beyond a family’s budget. As the country recovers from the recession and people stabilize their financial situations, NAHB economists expect that home prices will begin to increase by 2011.

NAHB’s home buyer brochure “Opportunity Knocks for Home Buyers” describes many of the opportunities in today’s market, as well as the long-term financial benefits of homeownership. It provides examples of how interest rates affect monthly mortgage payments and the typical federal tax savings over the first five years of homeownership.

The home buyer tax credit is still available for eligible home buyers who had a signed sales contract by the April 30 deadline and who close by June 30, 2010, as well as for qualified members of the military, foreign service and intelligence communities, who have until April 30, 2011, to sign a contract. For more information, go to www.federalhousingtaxcredit.com.

Source: RISMedia and National Association of Home Builders (NAHB)


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Home Buyers Tax Credit Extended for Armed Service Members

The expiration date of the $8,000 first-time home buyer may have already passed for most, but there are some potential homebuyers who can still take advantage of this great opportunity.

For those who are qualified service members, you have an extra year to cash in on the credit. Your new deadline is April 30, 2011. The government defines “qualified service member” as a member of the uniformed services of the U.S military, a member of the Foreign Service of the U.S., or an employee of the intelligence community.”

The reasoning behind this extension is simple. National Association of Home Builders Chairman, Bob Jones, says, “Congress recognized that many service members may have missed out on the home buyer tax credit due to being posted overseas. It is only fitting that they be given another year to take advantage of this opportunity in appreciation of the sacrifices they have made serving our country.”

There has been another modification to the credit for members of the armed service. Currently, a buyer must repay the credit if they move out of their new home within three years. This particular contingency has been waived if the move is due to government ordered extended duty service.

Source: Carla L. Davis (RealtyTimes)


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New Tax Breaks to Stimulate the Economy

Taxes are more complicated than usual with all the new deductions and credits created last year to stimulate the economy. And in some instances, Congress went back to revise and expand the tax breaks. The popular home buyer credit, for instance, is on its third version.

“You can’t just sit down with last year’s return and make sure you fill in the same lines and think you got everything coming to you,” says Harris Abrams, a senior tax analyst with Thomson Reuter’s Tax & Accounting.

Fortunately, many of the new tax breaks are credits, which are better than a deduction because they reduce your bottom-line tax bill dollar-for-dollar.


So before you fill out your return, here’s a refresher on some of the key tax breaks this season:

Donations to Haiti
If you made a charitable donation for earthquake relief in Haiti, you can deduct it on your 2009 itemized return instead of waiting until next year. This applies to cash gifts—not clothes or other property—made by check, text message or credit cards before March 1, 2010. As usual, donations must go to qualified charities, and you’ll need a receipt. For donations made via text message, a phone bill with the name of the charity and details of the gift will suffice.  More info on IRS.gov.

Making work pay credit
This credit is worth up to $400 a year for singles and $800 for joint filers within certain income limits. It was designed to put money quickly into consumers’ hands by having employers reduce the amount of taxes withheld in paychecks.

**Even though you got some or all of the money last year, you will need to fill out the new Schedule M if filing a Form 1040 or 1040A to officially claim the credit.

That said, more than 15 million taxpayers are in for an ugly surprise, according to an estimate by the Treasury Inspector General for Tax Administration. Their refunds may be reduced or they might owe more in taxes because their employers wound up taking out too little for taxes. This can happen to workers with multiple jobs, two-income couples or dependents with wages, says Melissa Labant, technical manager for the American Institute of Certified Public Accountants. Something similar can happen to workers with multiple employers reducing withholdings, Labant says. And dependents don’t qualify for the credit, so they may have to make up for a shortfall in tax withholdings, she says. The Making Work Pay credit is in effect for this year, too. If you didn’t have enough taxes withheld last year, adjust your W-4 now so your employer increases your tax withholdings.  More info on IRS.gov.

Home buyer credit
Originally, the $8,000 credit was only for first-time home buyers. Now, long-time homeowners can get a credit of up to $6,500 if they bought a new principal residence after Nov. 6 and lived in their old homes for at least five years in a row in the past eight years. The income limits for eligibility also were raised late last year and the deadline extended. You now must have a house under contract by the end of April, and close the deal by the end of June, and you can claim the credit on your 2009 return. But you won’t be able to file a return electronically when claiming the credit. Blame all the fraudulent home buyer claims last year—that cost taxpayers millions of dollars. To fight fraud, the IRS requires that you file a paper return and submit proof that you bought a house. If you’re claiming the $6,500 credit, you’ll need to document that you meet the five-year residency requirement. The IRS will start processing these paper returns in mid-February, and the earliest refunds will go out toward the end of March. If you don’t provide full and accurate information, count on your refund taking longer.  More info on IRS. gov.

Car sales tax deduction
If you bought a new car, motorcycle or mobile home between Feb. 17 and the end of 2009, you may be able to deduct the sales tax paid on the first $49,500 of the purchase price. You don’t have to itemize to get this deduction. The tax break starts phasing out once income hits $125,000 for singles and $250,000 for joint filers. More info on IRS.gov.

Energy credits
Congress expanded these for energy-conscious homeowners. For 2009 and this year, claim a credit worth up to 30% of the cost—not to exceed $1,500 over the two years—of adding energy-efficient windows, doors, heaters, air conditioners, water heaters and heating systems. Add a solar water heater, wind turbine, geothermal heat pump, solar electric systems, and the credit is worth 30% of the cost with no dollar limit. More info on IRS.gov.

Help for the unemployed
For 2009 only, you won’t have to pay income taxes on the first $2,400 of unemployment benefits received. Also worth noting is the recent expansion of the COBRA subsidy, although this isn’t a tax break. Uncle Sam has been paying 65% of the health insurance premiums for unemployed workers buying coverage under COBRA, the federal law that allows ex-employees to remain on an old employer’s health plan for up to 18 months. This subsidy was recently expanded by six months so unemployed workers can receive assistance for a total of 15 months. It applies to workers who lost their jobs from Sept. 1, 2008, through the end of next month. More info on IRS.gov.

Education credit
The $2,500 American Opportunity Tax Credit for higher education improves upon the old Hope Scholarship credit. “For most people, it’s going to be the credit of choice in the education area,” says Mark Luscombe, principal tax analyst with CCH, publisher of tax information. The Opportunity credit covers the first $2,000 spent on tuition, fees, books and required materials, and 25% of the next $2,000 in expenses. You can claim it in any of the first four years of college. And 40% of the credit is refundable, so if you don’t owe any taxes you can get as much as $1,000 back in a refund. The credit begins to disappear once income reaches $80,000 for singles and $160,000 for joint filers.  More info on IRS.gov.

Boost your savings
For the first time, you will be able to direct the IRS to use all or part of your refund to buy U.S. Savings Bonds. You can buy up to $5,000 worth of Series I bonds designed as a hedge against inflation. The bonds, sold in multiples of $50, will be mailed to you later. To buy the bonds or have the IRS split your refund among different bank accounts, fill out Form 8888.

Source: Eileen Ambrose – RISMedia

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The Expanded Home Buyer Tax Credit – In Detail

As 2010 begins, both real estate professionals and home buyers can look forward to taking advantage of the Extended and Expanded Home Buyer Tax Credit.

Originally created in 2008, the home-buyer tax credit has evolved from a $7,500 credit, which had to be repaid by the home buyer over the course of 15 years, to an $8,000 tax credit with no repayment required in 2009. Now, for a limited time in 2010, the $8,000 home buyer tax credit will still be available to first-time home buyers and certain current homeowners will also be eligible for a $6,500 credit.

To help everyone better understand the extended and expanded home buyer tax credit, here are some highlights of the changes.

Who can claim the credit?

“First-time home buyers” who purchase homes between November 7, 2009 and April 30, 2010 are eligible for the credit. To qualify as a “first-time home buyer” the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase.

For current homeowners purchasing a home during the same time frame, they are also eligible for a tax credit, so long as the home being sold or vacated was their principal residence for five consecutive years within the last eight. To elaborate, it must be the same home; it is not enough that they have been homeowners for five consecutive years, they must have been in the same home for five consecutive years.

Another key point is that the existing home does not need to be sold. One must, however, occupy the new home as a principal residence and do so for three years or risk recapture of the credit. Also, the new home does not need to cost more than the old home despite the concept that it is directed at “move up” buyers.

How much is the credit and what are the income limits?

The maximum allowable credit for first-time home buyers is $8,000 or 10% of the sales price, whichever is less.

For current homeowners, it is $6,500 or 10% of the sale price, whichever is less.

Under the extended home buyer tax credit, single buyers with incomes up to $125,000 and married couples with incomes up to $225,000 may receive the maximum credit.

The credit decreases for single buyers who earn between $125,000 and $145,000 and between $225,000 and $245,000 for home buyers filing jointly. The amount of the tax credit deceases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income – over $145,000 for singles and over $245,000 for couples – are not eligible for the credit.

What are the deadlines for qualifying for the credit?

Under the extended home buyer tax credit, as long as a written binding contract to purchase a home is in effect on April 30, 2010, and the deal is closed by July 1, 2010, one can claim the credit.

Will the tax credit need to be repaid?

No, the buyer does not need to repay the tax credit if he/she occupies the home for three years or more. However, if the property is sold during this three-year period, the full amount of the credit will be recouped on the sale. Another provision of the law waives the recapture provisions for service members who receive orders that require them to move.

Are there any other critical provisions?

There are three provisions people should be aware of:

-There is an $800,000 limitation on the cost of the home
-The purchaser must be at least 18 years old on the date of purchase
-For a married couple, only one spouse must meet this age requirement and dependents are not eligible to claim the credit

Finally, as an anti-fraud measure, purchasers must attach documentation of purchase to his/her tax return claiming the credit. Normally this would be a copy of the HUD-1, but could include other documents memorializing the settlement.

As with all tax matters, responsibility for complying with the tax code belongs to the taxpayer. Real estate professionals should recommend that their buyers consult their tax professionals to ensure eligibility for the credit and the proper way to claim the credit.

For more information including the required IRS forms please contact the Internal Revenue Service at 800-829-1040.

Source: Ken Trepeta, RISMedia

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Pending Homes Sales Compared to a Year Ago – Bright Days Ahead?

Contract activity for pending home sales fell after a surge of activity in preceding months to beat the original deadline for the first-time home buyer tax credit but remains comfortably above a year ago, according to the National Association of Realtors®.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in November, fell 16.0 percent to 96.0 from an upwardly revised 114.3 in October, but is 15.5 percent higher than November 2008 when it was 83.1.

Lawrence Yun, NAR chief economist, said a drop was expected. “It will be at least early spring before we see notable gains in sales activity as home buyers respond to the recently extended and expanded tax credit,” he said. “The fact that pending home sales are comfortably above year-ago levels shows the market has gained sufficient momentum on its own. We expect another surge in the spring as more home buyers take advantage of affordable housing conditions before the tax credit expires.”

Buyers who have a contract in place to purchase a primary residence by April 30, 2010, have until June 30, 2010, to finalize the transaction to qualify for the tax credit of up to $8,000 for first-time buyers and $6,500 for repeat buyers.

Yun projects an additional 900,000 first-time buyers will qualify for the extended tax credit in addition to about 2 million who have already purchased; 1.5 million repeat buyers also are expected to benefit from the credit.

“Many trade-up buyers, who have historically timed their purchase based on school-year considerations, will have to accelerate their buying plans if they need the tax credit to make a trade,” Yun said. Repeat buyers do not have to sell their existing home to qualify for the credit, but they must occupy the home they buy as their primary residence.

Yun added that mortgage interest rates cannot remain at rock-bottom levels for a sustained period and will likely inch higher in 2010. But the tax credit impact in the first half of the year and expected job growth impact in the second half will support home buying activity and absorb enough inventory to bring a rough balance between buyers and sellers. Home prices are expected to stabilize or even modestly rise as a result in 2010.

Watch the video interview with Lawrence Yun, NAR’s Chief Economist (Jan. 5, 2010)

Source: The National Association of Realtors® (NAR), “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.


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Home Buyers Tax Credit Extended – A Positive Step

The National Association of Realtors® today commended the U.S. Senate and House of Representatives for passing a bill that includes an extension and expansion of the current home buyer tax credit as an important step in ensuring a real estate and economic recovery.

“Realtors® appreciate the swift action by Congress to extend the home buyer tax credit and expand it to some current homeowners,” said NAR President Charles McMillan, a broker with Coldwell Banker Residential Real Estate in Dallas-Fort Worth. “As the leading advocate of housing and real estate issues, we urge President Obama to sign this legislation into law quickly to keep the momentum going in the fragile recovery of the nation’s housing market.”

NAR economists estimate that the current tax credit has contributed approximately $22 billion to the general economy, and approximately 2 million people will take advantage of the tax credit this year.

“The substantial rise in home sales we’ve seen over the past few months proves that the tax credit is working and is being used by buyers who were waiting for the right opportunity to get into the market,” McMillan said. “This important incentive is helping to stabilize the housing market, stimulate the economy and create new jobs in communities all across our great nation. Extending and expanding the home buyer tax credit will enable even more families to take advantage of current low interest rates and affordable prices to invest in their future through home ownership.”

The bill would extend the present $8,000 tax credit for first-time home buyers through April 30, 2010. Current homeowners are eligible for a $6,500 tax credit through April 30, provided they have lived in the home they are selling, or have sold, as principal residence for five consecutive years in the past eight years. If potential home buyers have a binding contract on or before that date, they will have until July 1 to close the transaction.

Income limits for eligible home buyers are expanded to $125,000 for single buyers and $225,000 for couples. The purchase price of the home cannot exceed $800,000. To help guard against fraud, buyers are required to attach documentation of purchase to their tax return.

Source: NAR’s Washington Report


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Home Prices Up Slightly for 3rd Straight Month

Signs of stabilization likely to be temporary, economists warn…

Home prices posted another modest rise in August, according to data released Tuesday, but economists cautioned that the expiration of a home-buyer tax credit and rising unemployment could reverse signs of stabilization in the housing market.

In 20 large metropolitan cities, home prices rose 1 percent on a seasonally adjusted basis in August compared with the previous month, according to the S&P/Case-Shiller Home Price Index. That was the third month-over-month increase in the closely watched index.

Prices are still falling compared with a year ago, down 11.3 percent in August, and are off 30.2 percent from their peak in 2006, hovering at 2003 levels, according to the index.

But bolstered by historically low interest rates, cheap foreclosure properties and the $8,000 tax credit for first-time home buyers, prices are falling at a slower rate and the monthly increase reflects stabilization, economists said.

“It’s a sign that there is a bottom in sight,” said Cameron Findlay, chief economist for LendingTree.com, an online mortgage company. It bodes well, he said, for “stabilization of home prices.”

Most of the cities tracked by the index had a rise in home prices in August, including San Francisco, where prices increased 2.6 percent compared with the previous month, and Minneapolis, where they climbed 2.3 percent on a seasonally adjusted basis. In the Washington region, prices rose 1.2 percent in August, but were down 7.9 percent compared with the same period last year.

And some parts of the country continued to struggle with monthly price declines. Prices fell on a seasonally adjusted basis in Charlotte and Seattle by less than half a percent. They were down 1 percent in Cleveland, and 0.8 percent in Las Vegas.

Economists cautioned, however, that the recent price stabilization is probably temporary. Rising unemployment will push more borrowers into foreclosure later this year, dumping more properties onto the market, they said. And the $8,000 tax credit for first-time home buyers generated temporary demand as buyers who otherwise might have waited to buy a house rushed to cash in before the credit vanished.

If the credit expires Nov. 30, home sales are likely to wane, analysts said. And prices could fall another 5 to 8 percent before starting to stabilize again next year, they said. Industry lobbyists are pushing Congress to extend the credit.

If the credit expires, “demand will take a hit — home sales will drop — and house prices will resume their downward course, brought down by the weight of rising foreclosures and rising unemployment rates,” Patrick Newport, an economist for IHS Global Insight, wrote in a research note.

Source: Washington Post


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Extending the Home Buyers Tax Credit – Almost There!

The extension and expansion of the homebuyer tax credit is the pending business in the Senate.

After a long week of negotiation on the credit, an agreement on the scope of both expansion and extension has been reached. The extension is part of a larger bill that has not yet gone to a vote, however. A Senate vote on the underlying bill will occur in the Senate during the week of November 1.

The package will then go back to the House. The House is expected to accept the Senate amendments, vote on the package and send it to the President for signature.

The underlying bill is an extension of unemployment benefits. Other provisions in the bill include expansion of the net operating loss carryback rules, new requirements for some tax return preparers and noncontroversial provisions that “pay for” these changes.

The agreement on the extension and expansion of the credit is as follows:

• Credit available for purchases before May 1, 2010. Prospective purchasers with binding contracts in place as of April 30, 2010 will be allowed an additional 60 days to complete the transaction.

• Credit remains at $8000 for first-time purchasers. No change to definition of first-time purchaser.

• New $6500 tax credit for repeat buyers who purchase between December 1, 2009 and May 1, 2010. Repeat buyers must have lived in their homes consecutively for 5 of the previous 8 years.

• Income limits are expanded to $125,000 on a single return and $225,000 on a joint return. Current law $20,000 phase-out retained.

• New anti-fraud limitations are imposed.

The White House has indicated that President Obama will sign the legislation.

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Source: NAR’s The Washington Report


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