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

 

 

Find Home Values for Your Sunstone Village Subdivision in Fort Collins

Do you live in the Sunstone Village Subdivision in Southeast Fort Collins? 

Are you curious about what your single family home may be worth? 

Here’s an easy way to find out what homes like yours are selling for in today’s market.  Plus get a Free Report with up to the minute statistics based on all the homes currently for sale and sold in Sunstone Village over the last 6 months in all price ranges.

To get your FREE report on Sunstone Village Single Family Home Prices, just visit Sunstone Village Subdivision and fill out the form and we’ll send it to you right away.

If you’re going to sell your house in the next six months, what you do right now can make the difference in thousands of dollars and there are some simple things you can do now to make sure you get top dollar when you do sell…and when you sign up, I’ll also send you my booklet, How To Sell Your House For Top Dollar – Fast!

If you are going to sell your Sunstone Village home then here are a few other statistics that you should have:

• Absorption Rate (the number of months to sell off the current inventory in Sunstone Village)
• Average Days to Offer (the time it takes on average to get a home under contract in Sunstone Village)
• Likelihood of a Home Selling (the percentage of homes that sold in Sunstone Village)
• Ratio of Sold Price to Asking Price (how close to asking price are homes selling for in Sunstone Village)

These are some of the additional detailed statistics I’ve calculated to help provide all the necessary tools for a single family homeowner in the Sunstone Village Subdivision.  A homeowner will have a precise idea how much money their home could sell for and the time frame it would take to sell. 

This is powerful information, isn’t it? 

Remember, All real estate is local!

Thanks for taking my readership to over 23,700 views.  As always feel free to send me feedback.

The Fairbrooke Subdivision in West Fort Collins

Do you live in the Fairbrooke Subdivision in west Fort Collins? 

Are you curious about what your single family home may be worth? 

Here’s an easy way to find out what homes like yours are selling for in today’s market.  Plus get a Free Report with up to the minute statistics based on all the homes for sale and sold in Fairbrooke over the last 6 months in all price ranges.

To get your FREE report on Fairbrooke Single Family Home Prices, just visit Fairbrooke Subdivision and fill out the form and we’ll send it to you right away.

If you’re going to sell your house in the next six months, what you do right now can make the difference in thousands of dollars and there are some simple things you can do now to make sure you get top dollar when you do sell…and when you sign up, I’ll also send you my booklet, How To Sell Your House For Top Dollar – Fast!

If you are going to sell your Fairbrooke home then a few other statistics that would be valuable are the average days to an accepted offer (more important than the average days on market), the absorption rate (the number of months needed to sell off the current inventory), how good a chance you have of actually selling your home (the likelihood that your home will sell as a percentage) and the average ratio of sale price to asking price.

These are some of the additional detailed statistics I’ve calculated to help provide all the necessary tools for a single family homeowner in the Fairbrooke Subdivision.  A homeowner will have a good idea how much money their home could sell for and the time frame it would take to sell. 

This is powerful information, isn’t it? 

Remember, All real estate is local!

Thanks for taking my readership to over 23,000 views.  As always feel free to send me feedback.

Senator Mark Udall Replies to my Email Supporting the Economic Stimulus Package

I sent the following email to our Colorado State Senator, Mark Udall, sharing my support of the economic stimulus package.

Dear Senator Udall,

 I would like to inform you that I am in complete agreement with implementing the proposed tax credit to all home buyers at the rate of 10% of the sales price up to a limit of $15,000 for a one year period to all purchasers of primary residences.

Also, I would like to see Amendment 353 approved to provide a 30 year fixed financing at a rate of about 4%, for anyone purchasing a primary residence.

These two provisions could have a tremendous impact on our industry. If they are coupled together with provisions to ease the flow of credit and reduce foreclosures, we could see an immediate and dramatic turn-around in real estate.

I feel that these provisions represent real economic stimulus. They will put money in the hands of millions of homeowners, increase sales, stabilize home values and add more revenues to local communities in the form of property taxes.

I believe these provisions are essential components of any stimulus bill.

Yours truly,

Mike Malvey

RE/MAX Advanced, Inc.

Fort Collins, CO

970-420-7235

 

 

And Senator Udall sent me the following response.

 

Friday, February 06, 2009

Dear Mike Malvey,

Thank you for contacting me regarding the economic recovery bill being debated in the United States Senate.  I appreciate your taking the time to write and expressing your specific concerns about this important legislation.  Several thousand Coloradans have contacted me to share their views.

With the worst economic crisis facing our nation since the Great Depression, it is important that we do all we can to give a boost to our economy.  According to the U.S. Department of Labor, the national unemployment rate has increased to over 7%, a problem that is adversely affecting many Colorado families.  Along with rising unemployment, many Coloradans are struggling to stay in their homes as a direct result of the hardships they have faced because of the current economic crisis.

I believe that we must act to keep Coloradans working, but we must be thorough and get every assurance we can from the best minds, best historians, and best economists to ensure that this legislation will provide the necessary boost to our economy.  This package must be transparent and restore accountability to the expenditure of federal monies. Importantly, I want to make sure that the bill is heavily weighted towards creating jobs to stimulate the economy as soon as possible.  We have a talented workforce in Colorado and I believe that with the right federal policies, we will be able to keep Coloradans at work and keep them in their homes.

During debate of the economic recovery bill thus far, I have partnered with senators from both parties to improve the bill so that the federal government will spend taxpayer dollars effectively.  Moreover, I have filed several amendments that would help re-direct federal monies into job-creating projects that would help put Colorado back on the right economic path.  As the bill is being considered you can be sure that my staff and I will keep your suggestions and concerns in mind.

Thanks again for contacting me.  My job is not merely about supporting or opposing legislation.  It is also about bridging ideological divides and bringing people together to solve problems.  I welcome your letters and e-mails and always listen closely to what you and other Coloradans have to say about matters before Congress, the concerns of our communities, and the issues facing our state and nation. 

Warm Regards,
 

Mark Udall
United States Senator, Colorado

 

Just thought I would share my exchange over this extremely important economic decision looming over Congress.

Thanks for taking me to over 23,000 views!

 

 

 

 

 

 

 

 

 

 

FHA Refinance Guidelines as of January 1, 2009

The changes to FHA refinance transactions are effective January 1, 2009.

1. The max loan to value (LTV) for rate & term refinances is 97.75%

2. The max LTV for cash-out refinances is 95% for loan amounts less than the conforming limit and 85% for loan amounts at or above the conforming limit.  (Must have 12 months seasoning and no 30 day late payments on high balance loan amounts – Loan amounts determined by County).

3. Two appraisals will be required for all cash-out refinances with a LTV above 85%.

4. High balance price hits on loan balances over $417,000.

5. New or current 2nd mortgages are eligible with no maximum CLTV.

6. Loan amount for streamline refinances without an appraisal cannot exceed the original loan amount.

7. UFMIP rates: 1.75% for all rate & term and cash-out refinances and 1.5% for all streamline refinances and down payment on purchases now 3.5%

8. The FHA secure refinance is terminated.

9. Rate and term refinance – loan amount can include: closing costs, discount points, current interest, prepayment penalties, pre-paids, late charges and escrow shortages.

10. Cash back on rate & term and streamline refinances cannot exceed $500