Fort Collins Brewfest 2009

The 20th annual Colorado Brewers’ Festival in historic downtown Fort Collins will be on June 27 and 28, 2009.  There will be over 50 Colorado beers to enjoy along with all the live music during the festival hours from 11 a.m. to 6 p.m. each day.

Obviously, everyone that will be sampling the beers must be at least 21 years of age.  The admission is $10 for a 2-day pass and $6 for a Sunday only pass.  The beer tokens are $2 and you need beer tokens in order to get your beer samples!  There will be a designated driver program available for non-beer drinkers.

The Colorado Brewers’ Fest is made up solely of Colorado Breweries, including host breweries from Fort Collins: Anheuser-Busch, Big Horn Brewery/CB & Potts, Coopersmith’s Pub & Brewing, New Belgium Brewing Co., Fort Collins Brewery, and Odell’s Brewing

Nothing goes better with beer than great tunes!  Check out these local Colorado bands for the best music show around.  

 

        Saturday, June 27  MUSIC            Sunday, June 28 MUSIC

        11:45am-1:30pm    Gription                11:45am-1:30pm    The Corduroy

        2:00-3:45pm          TBA                           2:00-3:45pm          Pineapple Crackers

        4:15-6:00pm           Roe                          4:15-6:00pm      Caleb Riley Funk Orchestra

 

No Pets Allowed at the festival.  Proceeds from the Colorado Brewers’ Festival help to fund the Lucky Joe’s St. Patrick’s Day Parade, Santa Claus, The Holidays Downtown, free summer concerts, and the 4th of July Downtown. Colorado Brewers’ Festival 2009 was sponsored by: Music Sponsor Bohemian Foundation,  Dellenbach Subaru, Clear Channel Communications, American Eagle, Anheuser-Busch, Flexx Productions, Burt’s Shirts, Coca-Cola and Fort Collins Now.  

VOLUNTEERING: 
The Downtown Business Association accepts volunteers to work 4-hour shifts throughout the event. As a Colorado Brewers’ Festival volunteer, you will receive a special edition T-shirt and complimentary entrance into the festival. Please call (970) 484-6500 to volunteer.

Come down and sample some of Colorado’s best brews all in one place.  From past experience, I would suggest having sunscreen and water as it is typically a hot day and not much relief from the sun or dehydration.  Be smart and assign a designated driver BEFORE you even get to the event. 

Have a great time and maybe I’ll see you down there.  Thanks for reading my blog.

Is Canceled Debt from a Short Sale Taxable Income?

Now that I have earned the Certified Distressed Property Expert (CDPE) designation for my comprehensive knowledge of short sales and foreclosures, I feel it is necessary to share how the IRS regards canceled debt.  The information below was copied directly from the IRS website.

Topic 431 – Canceled Debt – Is it Taxable or Not?

In general, if a debt for which you are personally liable is canceled or forgiven, other than as a gift or bequest, you may have to include the canceled amount in gross income. Depending on the circumstances by which your debt was canceled and the nature of any property associated with the debt, the canceled debt may qualify for an exception to resulting in gross income, or the canceled debt may result in gross income but the income may be excluded.

A debt includes any indebtedness for which you are liable or which attaches to property you hold. If property is associated with a debt, a cancellation of all or part of the debt may occur as a result of foreclosure proceedings on the property, repossession of the property, your return of the property to the lender or your abandonment of the property. Regardless of the factors relating to the cancellation, you must report any taxable amount as ordinary income from the cancellation of debt on Form 1040 or Form 1040NR and associated sub-schedules as advised in IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.

If a federal government agency or an applicable financial entity cancels or forgives a debt you owe of $600 or more, you should receive a Form 1099-C (PDF), Cancellation of Debt, showing amounts and other information relating to the cancellation. The amount of canceled debt is shown in Box 2 of the form.

Canceled Debts that meet the requirements for any of the following exceptions or exclusions will not be taxable.

Canceled Debt that Qualifies for Exception to Resulting in Gross Income:

1. Amounts specifically excluded from income by law such as gifts or bequests
2. Cancellation of certain qualified student loans
3. Canceled debt that if paid by a cash basis taxpayer is otherwise deductible
4. A qualified purchase price reduction given by a seller

 

Canceled Debt that Qualifies for Exclusion from Gross Income:

1. Cancellation of qualified principal residence indebtedness
2. Debt canceled in a Title 11 bankruptcy case
3. Debt canceled due to insolvency
4. Cancellation of qualified farm indebtedness
5. Cancellation of qualified real property business indebtedness

 

The exclusion for “qualified principal residence indebtedness”, enacted by the 2007 Mortgage Relief Act, now provides additional canceled debt tax relief for many American home owners involved in the mortgage foreclosure crisis currently affecting much of the country. The Act allows taxpayers to exclude up to $2,000,000 of “qualified principal residence indebtedness”.

Generally, if you exclude canceled debt from income under one of the exclusions listed above, you must also reduce your tax attributes (certain credits, losses, and basis of assets) by the amount excluded. You must file Form 982 (PDF), Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the exclusion and the corresponding reduction of certain tax attributes.

Refer to Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments, for more detailed information regarding; taxability of canceled debt, how to report it, and related exceptions and exclusions. Additional information can also be found in Publication 525, Taxable and Nontaxable Income.

Caution: If you have property that is security for a debt and that property is taken by the lender in full or partial satisfaction of your debt, you will be treated as having sold that property and may have gain or loss as a result. The gain or loss on such a deemed sale of your property is a separate issue from whether any canceled debt also associated with that same property is includable in gross income. See IRS , Sales and Other Dispositions of Assets, for detailed information on reporting gain or loss from repossession, foreclosure or abandonment of property.

I hope you found this information valuable.  As always, you should consult your attorney and/or accountant to see how this would apply to your specific situation.

You can reach me for questions at ShortSaleExpert@MikeMalvey.com.

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Kiddie Condo Loan Requirements Updated

 With all the recent changes to the lending industry, I wanted to provide an update on the latest FHA requirements for their Kiddie Condo Loan.

Kiddie Condo is simply a loan that included a non-occupying co-borrower, usually a parent helping their college age kids qualify for a home.

In prior years, the occupying borrower did not need to be able to qualify on their own, they just needed to have clean credit or no credit.  Here is what has changed for FHA loans:

1. The occupant needs to have credit, 3 tradelines.  With reported credit, they have to have a 620 credit score.   If they do not have a credit score, they have to have 3 alternate sources of credit with consistent, timely payments for at least the most recent 12 months.  Sources can include:  rent, utilities, cable, cell phone or land phone, insurance payments, etc.  Anything that is paid monthly that can be verified with 12 months of canceled checks and verification of payments from the provider.
2. If they do not have a credit score, they need to have a job and partially qualify on their own.  If they have a credit score of at least 620, then they do not.
3. the property can be any property, not just a condo.
4. This is for FHA only, all properties need to meet the 51% owner occupancy requirement
5. 3.5% is the down payment requirement, no down payment assistance is available when using a non-occupant co-borrower
6. 6% is the maximum seller contribution to go toward closing costs, prepaid items, and rate buydown.  NO portion of this can go toward down payment

 

Conventional options do not exist for this type of borrower. For conventional loans, if the “child” cannot qualify on their own, the parent has to purchase the property as an investment property. Here is what is needed for this:

1. 20% down payment is required
2. 680 minimum fico score, and with this score, rates and fees are very costly
3. ideal credit score is 740 and 25% down for best rates
4. If child is on the loan, they have to meet the same credit score requirements.  The lowest middle score of all borrowers is the qualifying score

Hopefully this information helps provide a more clear picture of the wonderful Kiddie Condo Loan.  It’s truly a remarkable loan especially for parents of CSU students that would like to help their son or daughter begin earning valuable credit and reap the benefits of homeownership.

If you would like more information regarding Kiddie Condos in Fort Collins, be sure to visit www.FortCollinsKiddieCondos.com or email me directly at CSUCondoExpert@MikeMalvey.com and I’ll be happy to answer your questions.

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Carbon Monoxide Bill Passed into Law in Colorado

Governor Ritter signed HB 1091 into law.  The new law will cover all new residential construction and existing single-family and multi-family housing units offered for sale, transfer or rent.  

Beginning July 1, 2009, a seller of residential real property containing a fuel-fired heater or appliance, a fireplace, or an attached garage will be responsible for assuring that a carbon monoxide alarm is properly installed within 15 feet of the entrance to each room lawfully used for sleeping.  No person shall have a claim for relief against a property owner or their authorized agent if a carbon monoxide alarm is installed in accordance with the manufacturer’s published instructions. 

HB-1091 covers all existing single-family and multi-family housing units offered for sale, transfer or rent.  In additon, all new residential construction is required to comply.

A Carbon Monoxide Alarm:

• Detects carbon monoxide and produces a distinct, audible alarm;
• Conforms to standards recognized by independent product-safety testing laboratories;
• Is battery powered, plugs into a home’s electrical outlet and has a battery backup, or is connected to an electrical system via an electrical panel;
• May be combined with a smoke detecting device if the combined device has signals that clearly differentiate between the two hazards.

Carbon Monoxide Alarms must be:

• Intalled in all homes with a fuel-fired heater or appliance, a fireplace, or an attached garage;
• Installed within 15 feet of the entrance to each room lawfully used for sleeping.

What a REALTOR® Needs To Know!

• By July 1, 2009, the Real Estate Commission will require each listing contract for residential real property to disclose the requirements specified by HB-1091.
• No person shall have a claim for relief against a property owner or their authorized agent if a carbon monoxide alarm is installed in accordance with the manufacturer’s published instructions.
• A seller of residential real property is responsible for assuring that an operational carbon monoxide alarm is properly installed.
• A buyer of residential real property shall have no claim for relief against any REALTOR® for damages resulting from the operation, maintenance, or effectiveness of a carbon monoxide alarm if the REALTOR® complies with the law.
• Nothing in the legislation precludes local governments from adopting or enforcing more stringent requirements for the installation and maintenance of carbon monoxide alarms.

I hope you find this information helpful.  Please contact me with any questions, Mike@MikeMalvey.com.

 

 

 

 

 

 

 

 

 

Options for Homeowners in Foreclosure in Fort Collins or Northern Colorado

As a certified distressed property expert (CDPE) specializing in the Fort Collins and Northern Colorado real estate market, I have received this extraordinary training which many agents and realtors haven’t.  This training allows me to assess a homeowner’s situation and be able to suggest which of the following strategies or set of strategies a homeowner could use in order to avoid foreclosure.

Here are some of the options a homeowner has to avoid foreclosure.

Reinstatement

If the reason a homeowner missed payments was temporary and it has been resolved then they have the option to reinstate their mortgage right up to the bank sale.  In order to reinstate a mortgage, the homeowner has to pay all missed payments, late fees, and legal fees that are due up to the date that the loan is reinstated.

Forbearance or Re-Payment Plan

If the issue that caused the homeowner to miss payments was temporary and the homeowner is not able to make a one-time reinstatement payment, they may be able to negotiate a forbearance or repayment plan.  The lender may allow the homeowner a given period of time to pay the delinquencies.

Sell the Property

If the homeowner has equity in their property, they can sell it and cure the foreclosure.  Unfortunately, many sellers believe they have to sell much faster than they do and end up taking the first offer that comes along.

Rent the Property

In some cases a homeowner facing foreclosure will have payments low enough to allow them to rent the property and keep up with the mortgage payments.  However, this is often a short-term solution since when taxes and insurance payments come due, many homeowners cannot afford them.

Refinance

If the homeowner has sufficient equity, income and their credit has not been damaged then refinancing may be an option.  Typically, this is a short-term solution if the issue that made the homeowner late in the first place has not been resolved.

Mortgage Modification

A mortgage company may qualify a homeowner for a mortgage modification if the homeowner has the means to afford their mortgage payments or very close to their mortgage payments.  A loan modification is similar to a lower interest refinance where the lender lowers the interest rate on the existing loan in order to lower the payments.  The homeowner will have to qualify for a modification by sending in proof of income and expenses.

Short Refinance

This process involves the refinance of a home with a reduction in the principal balance and often the interest rate as well.  The borrower will have to qualify for this process both in showing a hardship as well as showing the ability to pay the new mortgage often through a fully documented qualification process.

Deed-in-Lieu of Foreclosure

This is sometimes referred to as a “friendly foreclosure.”  The mortgage company agrees to take the deed back in exchange for the property and they typically have no further recourse.  This solution only works in cases where there is one mortgage and there are no liens (or very small liens) on the property or in rare cases where a first mortgage holder will negotiate with the second mortgage holder. 

Bankruptcy

A bankruptcy may stop a foreclosure and allow a homeowner to reorganize their debt and keep the property.  The reality however is that most of the time this is not the case and the bankruptcy only stalls the foreclosure.  If the homeowner is not able to make the payments after bankruptcy, the house will foreclose anyway.  The other major drawback to bankruptcy is that it makes it very difficult for the homeowner to sell the property once the bankruptcy process has started.  It makes it near impossible to negotitate a short sale.

Servicemembers Civil Relief Act (SCRA)

This law provides certain protection to military personnel that are in foreclosure in specific situations.  As it applies to mortgages, the law reads: The SCRA can provide temporary relief from paying your mortgage.  To obtain relief, a military member must show that their mortgage was entered into prior to beginning active duty, that the property was owned prior to entry into military service, that the property is still owned by the military member and that military service materially affects the member’s ability to pay the mortgage.  http://www.uscg.mil/legal/la/topics/sscra/about_the_ssra.htm

Short Sale

When a homeowner owes more on a property than it is currently worth and one of the above solutions do not apply to their situation, there is the option of pursuing a short sale.  Keep in mind that realtors with the CDPE designation, like myself, on average sell 80% of their short sales compared with only 10% by real estate agents that do not have the CDPE designation. 

Those are the options available to homeowners to evaluate in order to avoid a foreclosure based on their unique situation. 

You deserve the best chance to avoid foreclosure and restore hope to your family.  Contact me at ShortSaleExpert@MikeMalvey.com for FREE advice and an opportunity to schedule an in-home consultation.

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Tax Deductions for Rental Income & Expenses

As a realtor in Fort Collins, Colorado and an owner of several rental properties, I feel this is valuable information I copied directly from the IRS website to share with fellow investors and people thinking about investing.  Here are some of the advantages the IRS will allow for deductions as of today.

Topic 414 – Rental Income and Expenses
Generally, cash or the fair market value of property you receive for the use of real estate or personal property is taxable to you as rental income. You can generally deduct expenses of renting property from your rental income. Income and expenses related to real estate rentals are usually reported on Form 1040, Schedule E (PDF). Income and expenses related to personal property rentals are reported on Form 1040 (PDF).

Most individuals operate on a cash basis, which means they count their rental income as income when it is actually or constructively received, and deduct their expenses as they are paid. If you are a cash basis taxpayer, you cannot deduct uncollected rents as an expense because you have not included those rents in income. If a tenant pays you to cancel a lease, this money is also rental income and is reported in the year you receive it. Do not include a security deposit in your income if you plan to return it to the tenant at the end of the lease. But if you keep part or all of the security deposit during any year because the tenant damaged the property or did not live up to the terms of the lease, this money is taxable income in the year this determination is made. If the security deposit is to be used as the tenant’s final month’s rent, you include the money as income when you receive it, rather than when you apply it to the last month’s rent.

Some examples of expenses that may be deducted from your total rental income are depreciation, repairs, and operating expenses. You can recover some or all of your original expenses and improvements by using Form 4562 (PDF) (to report depreciation) beginning in the year your rental property is first placed in service, and beginning in any year you make an improvement or add furnishings. For information on depreciation, refer to Publication 946, How To Depreciate Property. Repair costs, such as materials, are usually deductible. For a discussion of the difference between repairs and improvements, refer to Publication 527, Residential Rental Property (Including Rental of Vacation Homes).

There are special rules relating to the rental of real property that you also use as your main home or your vacation home. For information on income from these rentals, or from renting at an amount less than the fair market value, refer to Topic 415, Renting Residential and Vacation Property (formerly Renting Vacation Property and Renting to Relatives).

If you do not use the rental property as a home and you are renting to make a profit, your deductible rental expenses can be more than your gross rental income, subject to certain limits. For information on these limitations, refer to Topic 425, Passive Activities – Losses and Credits.

For more information on rental income and expenses, including passive activity loss limits, refer to Publication 527.

If you or someone you know would like to learn more about investing in real estate in the Fort Collins area then please contact me for a free investment workshop at RemaxMike@MikeMalvey.com.

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Housing & Economic Recovery Act of 2009 FAQ’s

This valuable information is provided by the U.S. Department of Housing and Urban Development.  These FAQ’s will shed some light on the housing and economic recovery act of 2009 and how it will help qualified homeowners.

Q: How will the law help struggling homeowners keep their homes?
A: Through the Federal Housing Administration (FHA), an estimated 400,000 borrowers in danger of losing their homes will be able to refinance into more affordable government-insured mortgages. The program offers government insurance to lenders who voluntarily reduce mortgages for at-risk homeowners to at least 90% of the property’s current value.

Q: When will the program begin?
A: The program will begin on October 1, 2008 and sunset on September 30, 2011. Homeowners in danger of losing their homes before October 1, however, should not wait to contact their loan servicers and should begin applying for federally insured mortgages now.

Q: Who is eligible?
A: To be eligible to participate in this program, a borrower must:

• Have a loan on an owner-occupied principal residence. Investors, speculators, or borrowers who own second homes cannot participate in this program.
• Have a monthly mortgage payment greater than at least 31 percent of the borrower’s total monthly income, as of March 1, 2008.
• Certify that he or she has not intentionally defaulted on an existing mortgage, and did not obtain the existing loan fraudulently.
• Not have been convicted of fraud.

 

Q: How can a homeowner access this new program?
A: Homeowners or a servicer of an existing eligible loan need to contact an FHA-approved lender. The FHA-approved lender will determine the size of a loan that a borrower can reasonably repay and that meets the requirements of the program. If the current lender or mortgage holder agrees to write-down the amount of the existing mortgage and make the new loan affordable, the FHA lender will pay off the discounted existing mortgage. Loans provided under this program must be 30-year fixed rate loans.

Q: Are lenders required to participate in this program?
A: No. The program is completely voluntary for lenders, investors, loan servicers, and borrowers.

Q: How does this law help neighborhoods that have been hit by the foreclosure crisis?
A: The impact of the current crisis has not been isolated to individual borrowers or investors, but has been felt broadly by neighbors, communities, and governments across the nation. The law strengthens neighborhoods hit hardest by the foreclosure crisis by providing $3.9 billion in Community Development Block Grants to states and localities to buy foreclosed homes standing empty, rehabilitate foreclosed properties, and stabilize the housing market.

Q: Will this law be a bailout for speculators, homeowners, investors, and lenders?
A: No. It is narrowly tailored to keep families in their homes. For example:

• Only primary residences are eligible: NO speculators, investment properties, second or third homes will be refinanced.
• Investors and lenders must take big losses first in order even to participate. The owner of the old mortgage can get a maximum of 90% of the current value of the home (which presumably will be considerably less than the value of the original loan). In many cases the loss will be significantly greater, but 10% is the minimum.
• In addition, lenders must waive any penalties or fees, and help pay for the origination and closing costs of the new loans.
• Most homeowners will have seen the equity in their homes disappear before being able to refinance under this program. In addition, the FHA will get a portion of any future profits on the house, to make sure the government recoups its investment over the long run.

 

Q: Will this law reward families who bought homes they could not afford?
A: Many homeowners facing foreclosure were misled, were deceived, or were in other ways the victims of unfair lending practices.
To prevent future abuses by lenders, this law will establish a nationwide loan originator licensing and registration system to set minimum standards for all residential mortgage brokers and lenders. It also strengthens mortgage disclosure requirements to help ensure that borrowers understand their mortgage loan terms.

Q: How will this law make it more affordable to own a home?
A: There are a number of provisions that will make homeownership more affordable:

• Creates a refundable tax credit for first-time homebuyers that works like an interest-free loan of up to $7,500 (to be paid back over 15 years).
• Grants states $11 billion of additional tax-exempt bond authority in 2008 that they can use to refinance subprime loans, make loans to first-time homebuyers and to finance the building of affordable rental housing.
• Raises conforming loan limits for the FHA, Fannie Mae and Freddie Mac to $625,500. Because of the high cost of housing in California, a majority of the state’s residents were previously shut out from these programs. Raising these loan limits will lead to lower interest rates on some loans, greater refinancing opportunities, and enable more borrowers in high cost areas to avoid the type of nontraditional and frequently abusive loans that led to the current crisis.
• Provides couples using the standard deduction with up to an additional $1,000 deduction for property taxes ($500 for individuals).

Q: Does the law provide help to those who still cannot afford to own a home?
A: Yes. The bill includes a number of provisions to increase the supply of affordable housing, which has been a major problem in California pre-dating the current foreclosure crisis. For example:

• The bill creates a new permanent affordable housing trust fund – financed by Fannie Mae and Freddie Mac and not by taxpayers – to fund the construction, maintenance and preservation of affordable rental housing for low and very low-income individuals and families nationwide in both rural and urban areas.
• In addition, the legislation provides a temporary increase in the Low-Income Housing Tax Credit and simplification of the credit to help put builders to work to create new options for families seeking affordable housing alternatives.

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Please feel free to contact me with any questions especially if you are in the Fort Collins area: HousingSolutions@MikeMalvey.com.  I look forward to helping you!

FAQ’s on the 2009 Home Buyer Tax Credit

Here are some of the more common questions related to the 2009 Home Buyer Tax Credit provided through the National Association of Home Builders (NAHB).  As always, you should consult with your tax accountant for the proper deductions and tax recommendations.

1. Who is eligible to claim the tax credit?
   First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.
2. What is the definition of a first-time home buyer?
   The law defines “first-time home buyer” as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer. 

3. 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 $8,000.
4. Are there any income limits for claiming the tax credit?
   The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.
5. 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 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 such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs. 

6. 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 $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.
7. 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 $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $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 $8,000 by 0.5. The result is $4,000.Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.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.

    

8. How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008?
   The most significant difference is that this tax credit does not have to be repaid. Because it had to be repaid, the previous “credit” was essentially an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount. Certain exceptions apply.
9. How do I claim the tax credit? Do I need to complete a form or application?
   Participating in the tax credit program is easy. 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 69 of their 1040 income tax return. No other applications or forms 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 first-time home buyer tests.
10. 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. 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.
11. 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 $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed). 

12. I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns. How can I claim the new $8,000 tax credit instead?
    Home buyers in this situation may file an amended 2008 tax return with a 1040X form. You should consult with a tax advisor to ensure you file this return properly.
13. 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 on or after January 1, 2009 and before December 1, 2009.In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date. 

14. 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 the MRB home buyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.
15. I live in the District of Columbia. Can I claim both the Washington, D.C. first-time home buyer credit and this new credit?
    No. You can claim only one.
16. I am not a U.S. citizen. Can I claim the tax credit?
    Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of “nonresident alien” in IRS Publication 519.
17. 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 $8,000 in income taxes and who receives an $8,000 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 $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800. 

18. I bought a home in 2008. Do I qualify for this credit?
    No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit.
19. Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 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 their 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.Further, 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. Some state housing finance agencies, such as the Missouri Housing Development Commission, have introduced programs that provide short-term credit acceleration loans that may be used to fund a downpayment. Prospective home buyers should inquire with their state housing finance agency to determine the availability of such a program in their community.

     

20. If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
    Yes. The law allows taxpayers to choose (”elect”) to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 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 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult with a tax professional to determine how to arrange this. 

21. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, 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 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.

Again, please be sure to consult your accountant or attorney about how you can utilize this tax credit.  If you are in Fort Collins or the surrounding area and are interested in learning more about the home buying process then you may want to attend our next Home Buyer Seminar.

What Does The Economic Stimulus Mean to First Time Home Buyers?

Obama was in Denver today (February 17, 2009) to sign the economic stimulus bill!  This is a very challenging time for all and hopefully this bill will help pull us out of this recession…only time will tell.

What will the passing of this stimulus bill mean to first time home buyers?

The bill provides for an $8,000 tax credit that would be available to first-time home buyers for the purchase of a principal residence on or after January 1, 2009 and before December 1, 2009.  The credit does not require repayment.  Most of the mechanics of the credit will be the same as under the 2008 rules:  the credit will be claimed on a tax return to reduce the purchaser’s income tax liability.  If any credit amount remains unused, then the unused amount will be refunded as a check to the purchaser.

Here are some of the parameters. 

1. The maximum credit amount is the lesser of 10 percent of cost of the home or $8,000.
2. Any single family residence that will be used as a principal residence is eligible including condos and townhomes.
3. There is an income limit for individuals with adjusted gross income of no more than $75,000 ($150,000 on a joint return).
4. Purchaser(s) may not have owned a principal residence in the 3 years prior to the purchase.
5. There is no repayment for purchases on or after January 1, 2009 and before December 1, 2009.
6. If the home is sold within three years of purchase, entire amount of credit is recaptured on sale (applies only to homes purchased in 2009).
7. The effective dates are from January 1, 2009 and terminates on December 1, 2009.

There are obvious tax implications so I encourage you to speak with a qualified accountant about this tremendous tax credit.

With mortgage rates at or near historic lows and the tax benefits available, now is the right time to buy for those that are emotionally and financially prepared.

For those first time home buyers in Fort Collins, Colorado that would  like more information about the tax credit and the home buying process, please visit www.FortCollinsBuyerWorkshop.com and join us for our next First Time Home Buyer Seminar.

Thanks for reading!  Now over 24,000 views on my blogs!

Betsy Markey Response to Economic Stimulus Bill 2009

Here is the email response I received from Betsy Markey in regards to an email I sent voicing my hopes for a positive outcome of the proposed economic stimulus bill.

Dear Mike,

 

Thank you for expressing your support of H.R. 1, the American Recovery and Reinvestment Act (ARRA).  I truly appreciate hearing from you, and I am working hard to stand up for the people of Colorado’s 4^th District.

 

Last week I voted in favor of H.R. 1 because it will create and save an estimated 3 to 4 million jobs nationwide, cut individual and business taxes, invest quickly in transportation and infrastructure, and help rebuild our economy for long-term growth.  The bill passed in the House last week will create an estimated 59,000 jobs in Colorado-8,400 in the 4^th District. 

 

I understand the valuable role housing demand plays in the economy.  The current economic situation is in part a result of the housing crisis.  The economic recovery package I voted for includes $3.7 billion to repeal a requirement that an $8,000 first-time home buyer tax credit to be paid back over time for homes purchases between January 1 and December 1, 2009.

 

In addition to assisting new homeowners, H.R. 1 provides $2B for a neighborhood stabilization program to help communities purchase and rehabilitate foreclosed vacant properties.  It will also provide $1.5 Billion for the emergency shelter grant program, short-term rental assistance and other aid for families during this economic crisis.

 

I encourage you to continue to contact me about the issues that are important to you. Please feel free to visit my website at www.betsymarkey.house.gov where you can share your ideas with me, learn about the services I can provide to you, and sign up for my periodic email updates on what I am doing to help Colorado’s 4^th District. 

 

Sincerely,

Betsy Markey
Member of Congress