Federal Housing Tax Credit

Mulling over the complicated Federal Housing Tax Credit situation, I though I would provide some answers from the National Association of Home Builders Site.

The Worker, Homeownership, and Business Assistance Act of 2009 has established a tax credit of up to $6,500 for qualified move-up/repeat home buyers (existing home owners) purchasing a principal residence after November 6, 2009 and on or before April 30, 2010 (or purchased by June 30, 2010 with a binding sales contract signed by April 30, 2010).The following questions and answers provide basic information about the tax credit. If you have more specific questions, we strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.
Who is eligible to claim the $6,500 tax credit?
What is the definition of a move-up or repeat home buyer?
How is the amount of the tax credit determined?
Are there any income limits for claiming the tax credit?
What is “modified adjusted gross income”?
If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
Can you give me an example of how the partial tax credit is determined?
How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008? How is this different than the rules established in early 2009?
How do I claim the tax credit? Do I need to complete a form or application? Are there documentation requirements?
What types of homes will qualify for the tax credit?
I read that the tax credit is "refundable." What does that mean?
Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
I am not a U.S. citizen. Can I claim the tax credit?
Is a tax credit the same as a tax deduction?
Is there a way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 or 2010 tax return?
HUD allows “monetization” of the tax credit. What does that mean?
If I’m qualified for the tax credit and buy a home in 2009 (or 2010), can I apply the tax credit against my 2008 (or 2009) tax return?
For a home purchase in 2009 or 2010, can I choose whether to treat the purchase as occurring in the prior or present year, depending on in which year my credit amount is the largest?
How can two unmarried buyers allocate the tax credit if one qualifies for the $8,000 first-time home buyer tax credit and the other qualifies for the $6,500 repeat home buyer credit?
Does a married couple qualify for any home buyer tax credit in the following situation? Spouse A has lived in and owned the same principal residence for at least five years. Spouse B has lived in and owned the same principal residence for less than five years.

Who is eligible to claim the $6,500 tax credit? Qualified move-up or repeat home buyers purchasing any kind of home are eligible to claim this credit.
What is the definition of a move-up or repeat home buyer? The law defines a tax credit qualified move-up home buyer (“long-time resident”) as a person who has owned and resided in the same home for at least five consecutive years of the eight years prior to the purchase date. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. That is, both spouses must qualify as long-time residents, with at least five years of principal residency for each. Repeat home buyers do not have to purchase a home that is more expensive than their previous home to qualify for the tax credit.
How is the amount of the tax credit determined? The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500. Purchases of homes priced above $800,000 are not eligible for the tax credit.
Are there any income limits for claiming the tax credit? Yes. The income limit for single taxpayers is $125,000; the limit is $225,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) above those limits. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $145,000 (single) or $245,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.
What is “modified adjusted gross income”? Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and the first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.To determine modified adjusted gross income (MAGI), add to AGI certain amounts of foreign-earned income. See IRS Form 5405 for more details.
If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?Possibly. It depends on your income. Partial credits of less than $6,500 are available for some taxpayers whose MAGI exceeds the phaseout limits.
Can you give me an example of how the partial tax credit is determined? Just as an example, assume that a married couple has a modified adjusted gross income of $235,000. The applicable phaseout to qualify for the tax credit is $225,000, and the couple is $10,000 over this amount. Dividing $10,000 by the phaseout range of $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $6,500 by 0.5. The result is $3,250.Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $138,000. The buyer’s income exceeds $125,000 by $13,000. Dividing $13,000 by the phaseout range of $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $6,500 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,275.Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.
How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008? How is this different than the rules established in early 2009?The previous tax credits applied only to first-time home buyers and were for different amounts of money.
How do I claim the tax credit? Do I need to complete a form or application? Are there documentation requirements?You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on line 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns). Please note that although the Form is titled “First-Time Homebuyer Credit,” this is the correct form for claiming both the $8,000 first-time homebuyer tax credit and $6,500 repeat buyer tax credit.No other applications are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and repeat home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase. Home buyers must attach a copy of their HUD-1 settlement form (closing statement) to Form 5405 as proof of the completed home purchase. In cases where a HUD-1 form is not used, such as for construction of some new homes, you should attach a copy of the certificate of occupancy in lieu of the HUD-1.Homebuyers should be sure to read the instructions for the revised IRS Form 5405 to be sure they meet the new program requirements.
What types of homes will qualify for the tax credit? Any home that will be used as a principal residence will qualify for the credit, provided the home is purchased for a price less than or equal to $800,000. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.It is important to note that you cannot purchase a home from, among other family members, your ancestors (parents, grandparents, etc.), your lineal descendants (children, grandchildren, etc.) or your spouse or your spouse’s family members. Please consult with your tax advisor for more information. Also see IRS Form 5405.
I read that the tax credit is “refundable.” What does that mean?The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $6,500 home buyer tax credit. As a result, the taxpayer would receive a check for $5,500 ($6,500 minus the $1,000 owed).
Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit? Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been “purchased” on the date the owner first occupies the house. In this situation, the date of first occupancy must be after November 6, 2009 and on or before April 30, 2010 (or by June 30, 2010, provided a binding sales contract was in force by April 30, 2010).In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date. To provide proof of purchase, homebuyers must attach a copy of the HUD-1 Form or certificate of occupancy to IRS Form 5405.
Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program? Yes. The tax credit can be combined with an MRB home buyer program.
I am not a U.S. citizen. Can I claim the tax credit?Perhaps. Anyone who is not a nonresident alien (as defined by the IRS) and who has owned and resided in a principal residence in the United States for at least five consecutive years of the eight years prior to the purchase date can claim the tax credit if they meet the income limits. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. The IRS provides a definition of “nonresident alien” in IRS Publication 519.
Is a tax credit the same as a tax deduction? No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $6,500 in income taxes and who receives an $6,500 tax credit would owe nothing to the IRS.A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $6,500 in income taxes. If the taxpayer receives a $6,500 deduction, the taxpayer’s tax liability would be reduced by $975 (15 percent of $6,500), or lowered from $6,500 to $5,525.
Is there a way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 or 2010 tax return? Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.Buyers should adjust the withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.In addition, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. As a result, some state housing finance agencies have introduced programs that provide short-term second mortgage loans that may be used to fund a downpayment. Prospective home buyers should check with their state housing finance agency to see if such a program is available in their community. To date, 18 state agencies have announced tax credit assistance programs, and more are expected to follow suit. The National Council of State Housing Agencies (NCSHA) has compiled a list of such programs, which can be found here.
HUD allows “monetization” of the tax credit. What does that mean?It means that HUD will allow buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 or 2010 income taxes to receive a refund. These funds may be used for certain downpayment and closing cost expenses.Under the guidelines announced by HUD, non-profits and FHA-approved lenders are allowed to give home buyers short-term loans. The guidelines also allow government agencies, such as state housing finance agencies, to facilitate home sales by providing longer term loans secured by second mortgages.Housing finance agencies and other government entities may also issue tax credit loans, which home buyers may use to satisfy the FHA 3.5 percent downpayment requirement.In addition, approved FHA lenders can purchase a home buyer’s anticipated tax credit to pay closing costs and downpayment costs above the 3.5 percent downpayment that is required for FHA-insured homes.More information about the guidelines is available on the NAHB web site. Read the HUD mortgagee letter (pdf) and an explanation of the FHA Mortgagee Letter on Tax Credit Monetization (pdf). An FAQ about monetization (pdf) is available at the NAHB web site.
If I’m qualified for the tax credit and buy a home in 2009 (or 2010), can I apply the tax credit against my 2008 (or 2009) tax return? Yes. The law allows taxpayers to choose (“elect”) to treat qualified home purchases in 2009 (or 2010) as if the purchase occurred on December 31, 2008 (or if in 2010, December 31, 2009). This means that the previous year’s income limit (MAGI) applies and the election accelerates when the credit can be claimed. A benefit of this election is that a home buyer in 2009 or 2010 will know their prior year MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.Taxpayers buying a home who wish to claim it on their prior year tax return, but who have already submitted their tax return to the IRS, may file an amended return claiming the tax credit using Form 1040X. You should consult with a tax professional to determine how to arrange this.
For a home purchase in 2009 or 2010, can I choose whether to treat the purchase as occurring in the prior or present year, depending on in which year my credit amount is the largest? Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in the present year and a larger credit would be available using the prior year MAGI amounts, then you can choose the year that yields the largest credit amount.
How can two unmarried buyers allocate the tax credit if one qualifies for the $8,000 first-time home buyer tax credit and the other qualifies for the $6,500 repeat home buyer credit? The buyers can allocate the tax credit in any reasonable manner, provided neither claims a tax credit higher than the one they qualify for and the home purchase does not yield a total of more than $8,000 in tax credits. For example, the repeat home buyer could claim $6,500 and the first-time home buyer could claim $1,500. Alternatively, both buyers could claim a $4,000 tax credit.
Does a married couple qualify for any home buyer tax credit in the following situation? Spouse A has lived in and owned the same principal residence for at least five years. Spouse B has lived in and owned the same principal residence for less than five years.In this situation, the couple does not qualify for any home buyer tax credit. Because the couple is married, the law tests the ownership history of both spouses. Spouse A clearly does not qualify for the $8,000 first-time home buyer tax credit, so neither does Spouse B.Spouse A does appear to qualify for the $6,500 repeat buyer credit, but because Spouse B has not owned and lived in the same principal residence for at least five years, neither of them can claim the repeat home buyer tax credit.

2010 Offers Promising Market Trends for the Salida Real Estate Market By: K. Hale Chamblee

After a tumultuous year for the economy and the real estate market we're getting a lot of current and potential Salida residents asking, "What's next?" Truth be told, this is a very good question.

If we start by looking at the national market we learn that Pending Home Sales were down by 16% in November 2009, as compared to October 2009 - but up 15.5% from November 2009. In the West, these figure look even better with Pending Home Sales down just 2.7% from the previous month, and up 21.4% from the previous year. At Century 21 Wes Hill & Associates November 2009 was the best month, by far, the firm has had in nearly two years. Is this a flash in the pan? Or a continuing trend?

A drop in Pending Home Sales was expected after the surge of activity to beat the original deadline for the First-time Home Buyer Tax Credit, but market indicators push toward increased sales activity as a continuing trend. By early Spring we anticipate seeing an increased volume of sales and pending sales as home buyers respond to the recently extended and expanded tax credit.

Buyers that have a contract in place for the purchase of a primary residence by April 30, 2010 have until June 30, 2010 to close and qualify for a tax credit of up to $8,000 for first-time buyers and $6,500 for repeat buyers. Nationally, 900,000 first-time buyers are expected to qualify, in addition to the 2 million that have already made purchases; 1.5 million repeat buyers are expected to qualify. Repeat buyers do not need to sell their current home in order to qualify, however, they must occupy their new home as a primary residence.

The impact of the tax credit on the first half of the year, and job growth in the second half of the year are expected to contribute to increased home buying activity and thereby absorb enough market inventory to again bring a rough balance between buyers and sellers. In 2010 home prices are expected to stabilize or make a modest increase as a result.

What about the local market? The real estate market in Salida, Colorado and the surrounding areas was not immune to the national trends in 2009, however, things are already looking up. In 2009, the average listing price for residential property in Chaffee County was $258,945, and the average sell price was $242,05 - that's 93.5% of asking. By comparisson, the average list price of residential property for Chaffee County in 2008 was $280,900, with an average sell price of $266,137, or 94.7% of asking. Already in 2010 we've seen 2x as many homes sold when compared to last year and the average list price has climbed to $273,775, with an average increased sales price of $258,117, or 94.3% of asking. Plus, if current trends on the Front Range are any indicator, we can expect the Salida market to pick up significantlyin the coming months.

All in all it looks like 2010 is shaping up to be another successful year for the real estate in Chaffee County!

HOMEBUYER TAX CREDIT: EXTENDED & EXPANDED By: K. Hale Chamblee

The unquestionable and favorable influence of the First-time Homebuyer Tax Credit on the housing market, and therefore the economy, had many, including the National Association of Realtors, lobbying for an extended and expanded bill that would benefit a greater number of potential buyers for a longer period of time, and that's just what we got!!

Under the Extended Homebuyer Tax Credit, first-time buyers can still receive a maximum $8,000 tax credit on houses purchased until April 30, 2010. PLUS the bill has been expanded to include up to a $6,500 tax credit for existing homebuyers that purchase a new or exisiting between now and April 30, 2010.

In order to qualify as first-time buyers, the purchaser and his/her spouse cannot have owned a home during the 3 years prior to purchase. Existing homebuyers must have used the home being sold or vacated as primary residence consecutively for 5 of the last 8 years.
Extended eligible properties are primary residences, including: single-family homes, town homes, condos and co-ops. (Sorry folks, no second homes)

Qualifying properties must have a contract to purchase by April 30, 2010 but have until July 1, 2010 to close, and there is no need to re-pay the tax credit so long as buyers occupy the house for 3 years or more.

The tax credit is determined by:
The price of the home, which cannot exceed $800,000 and,
The buyer's income. Income caps have been increased since 2009 and the new Extended Homebuyer Tax Credit limits are as follows: in order to receive the maximum allowable tax credit for a particular purchase price an individual can make up to $125,000 annually, and married couples up to $225,000 annually. A partial tax credit is available to those making up to $145,000 annually as individuals, and couples making up to $245,000 anually.

In other good news, the loan limits will not shrink and remain at $730,000 giving buyers in high priced markets the opportunity to take advantage of the historically low mortgage rates.
There are a whole bunch of projections on just what this is going to do to further help the economy, but I'll save those for the next entry. In the meantime, whether you're in the market for your first home, need a bigger home for your growing family or are ready to down size - get in touch to see how we can make this amazing opportunity work for you!

Why Getting Pre-Approved For Your Loan FIRST Takes Care of Your Financial Woes By: Andrea Mossman

So you are ready for that next big step of purchasing your first house. Well, if it is your first home or fifth home financing has evolved into a trying process. Hopefully by reading this blog, you will be headed in the right direction to find the loan that fits your financial situation. Remember this might be the biggest purchase of your life so do it right. Don’t be afraid to ask questions to get the information you are looking for.

Before you begin your house hunt start by going to a reputable bank or mortgage lender to search for the perfect loan that fits your budget. If you have the time and energy I would suggest shopping around for different lenders to see who is willing to work for you and who best suits your needs. Lenders need your business, so let them work for it. The first question they should ask you is what is your credit score? Buyers are finding it near impossible to get a loan with out having an excellent credit rating. That in mind the next question they should ask is how much money do you have for a down payment? These questions might not be the first two lenders will ask but these questions will steer you clear from negative results if this information is not known from the get go.

The next conversation you might have is what type of loan are you interested in? Ask your lender about the different types of loans and which options will best suit your needs. Lenders are now required to provide you with documentation on the negative aspects of every loan in an easy-to-read format. I would suggest you do some research on line about the many different and creative ways to pay off your home and come with questions for your lender about how to manage your financials now and in the future.

Be smart and proactive about getting your financial questions cleared up BEFORE you begin the exciting process of looking and purchasing your home.

If You’re Looking for a Slower Pace With A Pulse, Allow Me To Introduce You To Salida, Colorado By Hale Chamblee

The onset of the “Green” movement, an increased interest in community and sustainability, combined with the recent economic recession are inspiring – sometimes forcing – people of all walks of life to reconsider and reinvent. These times are liberating. The traditional constructs of modern life are being challenged, lifted, discarded in a way that can be both frightening and exciting. We are being called upon to succeed in a new climate and being asked to think outside of the box. This is a time of opportunity; we have been given permission to change.

I like Salida because it is a place rich in real wilderness and real community, a place more valuable because people still have a relationship with the land, a place where the annual harvest is still bought and sold as livelihood. Salida is a place where whole golden glades of aspen are held precious, as is the annual arrival of the eagles, “balds”, that have come down from the high country for an easy winter of fishing on the river.

Salida isn’t a perfect utopia of a mountain town, but it is a real place. If you’re looking for somewhere you can re-invent yourself and your way of life, if you’re looking for something a little simpler and a little slower, if you’re craving a new definition for riches, or a new kind of relationship with the land, it might just be the place for you!

This Time of Year Short Sale is Better Than a Shorts Sale By: Andrea Mossman

In today’s real estate market it is undeniable that America is feeling the impact of foreclosures. This trend has made the Short Sale a part of the everyday language of bankers and realtors alike. Therefore, it is important for buyers and sellers of real estate to understand the ins and outs of this trend.

In short, no pun intended, the lender accepts less than what the current owner owes from a qualified buyer. This idea of a short sale is intriguing for lenders, sellers, and buyers because it makes the best out of a bad situation for all parties involved. The lender does not lose as much money as they would if they foreclosed on the property. In addition to selling their home, the Seller may salvage their credit, while the Buyer gets a good deal. This is the main reason why this type of transaction is becoming more popular.

The primary disadvantage of this type of transaction is the inconsistencies from one financial institution to another. Banks are experimenting with the specifics of this process which can result in extended time tables for negotiating deals, while other lenders may hold the seller responsible for the net loss between the mortgage amount and sale price. Fortunately, the Foreclosure Alternatives Program has been established for lenders to grapple with these issues and create new parameters to reduce foreclosures. Reducing the number of foreclosures will strengthen many sagging real estate markets.Your options as a buyer or seller in today’s market have extended far beyond the traditional loan because of the increasing number of foreclosures. As an informed buyer or seller you can maximize your ability to benefit from today’s challenging market conditions. This is why choosing a Realtor who is knowledgeable about the short sale is a step in the right direction.

The Little (Housing) Engine That Could By: Hale Chamblee

After what may seem like an eternity of dismal news about the nation’s real estate market, America’s housing engine appears to be changing mantras from, “I think I can, I think I can…” to, “I KNOW I can, I KNOW I can…”

No small amount of attention has been paid to the flailing housing industry in an attempt to get it back on track as the engine that historically pulls us out of a recession, and by recent accounts, these measures are working. The drop in both interest rates and home prices, combined with the $8,000 tax credit for first-time homebuyers, have buoyed existing home sales. In fact, 2009 2nd quarter existing home sales are up 3.8% (in most states) from the 1st quarter and price reductions have made metro areas increasingly affordable.

A reduction in inventory will work to stabilize home prices, but in the meantime there are some pretty great deals to be had. While sales have slowed in Salida, Colorado and the surrounding areas, the market is far from dead. Recent weeks have shown a decided increase in activity as buyers that have been waiting for the market to “bottom out” before investing in the area are now taking action. The median home price in Salida, Colorado, this summer (based on sales from 5/1/2009 to time of writing) remains an affordable $250,000, while homes on an acre or more inch up only slightly to $270,000. Easily making Salida the most affordable mountain town in Colorado!

The need for goods and services associated with home sales inevitably pumps tens of thousands of additional dollars, per sale, into the economy – which may also account for the recent “I KNOW I can” attitude of the stock market. The steady rise of these economic indicators brings confidence that the upswing may well be sustainable – and while we still have a ways to go, this is good news for buyers and sellers alike!