Bank Error in Your Favor

Okay, not an actual bank error (perhaps that depends on our political persuasions, grin), but it feels about that good for Rob and Linda. They woke up to the news that they are suddenly going to receive $6,500 on their new home purchase (later this month). Not bad when you are expanding your living space - and who doesn’t want all the help we can get when talking on the expense of a move?

How come? What is the NEW tax credit about? Check with your tax guys and gals to confirm… 1) If you are a first time homebuyer, you are still going to receive the $8,000 tax credit through April 2010. 2) The new addition: If you have lived in your own home for five consecutive years over the last eight years – you are getting $6,500 if you are under contract before April 30th 2010 (just under 6 months from today). 3) If you are a builder, you can get back some of taxes you paid over the last five years.

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Here are some of the most frequently asked questions on the changes to the Homebuyer Tax Credit


Question: Existing homeowner credit: Must the new house cost more than the old house?
Answer: No. Thus, for example, individuals who move from a high cost area to a lower cost area who meet all eligibility requirements will qualify for the $6500 credit.

Question: I am an existing homeowner. On October 25, 2009, I signed a contract to purchase a new home. I have lived in my current home for more than 5 consecutive years and am within the new income limits. I will go to settlement on November 20. If
President Obama has signed the bill by the time I go to settlement; will I qualify for the new $6500 tax credit?
Answer: Yes. The existing homeowner credit goes into effect for purchases after the date of enactment (when the bill is signed). There is no reference to the date of contract for the new credit. The provision looks solely to the date of purchase, which is generally the date of settlement.

Question: I am a first time homebuyer but was not within the prior income limits at the time I entered into my contract to purchase on October 30, 2009. I will be covered, however, by the new income limits. If the new rules have been signed into law by the time I go to settlement, will I be eligible for a credit?
Answer: Yes. The new income limitations go into effect as soon as the President has signed the bill. The income limit and other eligibility rules will look to your status as of the date of purchase, which is the settlement date. So if the new rules have been signed when you go to settlement, you should be eligible for the credit (or a portion of the credit if you're within the phase-out range).

Question: I am an eligible existing homeowner. I have a fair amount of equity in my home. I have found a home with a nonnegotiable price of $825,000. Will I be able to use any of the $6500 tax credit?
Answer: No. The $800,000 cap on the cost of the purchased home is firm at $800,000. Any amount above $800,000 makes the home ineligible for any portion of the credit. The $800,000 is an absolute ceiling.

Question: I owned my home for 10 years, but sold it two years ago year and have been renting since. If I purchase a home, will I be eligible for the $6500 tax credit if I meet all the other eligibility tests?
Answer: Yes. Because you lived in the home for more than 5 consecutive years of the previous 8, you will qualify for the $6500 credit. For example, Say John and his wife bought a home in 2000 and lived there until 2008 when he got a divorce. Whether John has been renting or bought in the interim, he WOULD INDEED be eligible for the credit because he owned a home and occupied it as his principal residence for 5 consecutive years out of the last 8 years. The keyword here is "consecutive." As long as he lived in that house for 5 years straight what he did since 3 years doesn't impact eligibility.

Question: I am an eligible first time homebuyer. I entered into a contract to purchase on
November 1, 2009. Do I have to go to closing before December 1? How does the extension date affect me?
Answer: You do not have to close before December 1. Once the legislation has been signed, it will be as if the Nov 30 date had never existed. Therefore, so long as the contract settles before April 30 (or July 1, worst case), the purchaser will be eligible for the credit.

National Association of REALTORS® Government Affairs Division

$7,290 by April 30th – Move Up Buyers, 1st Time Home Buyers

Well, it looks like we are going to see a $7,290 version of the tax credit through April 30th of next year (contract date, close by the end of June 2010). NOT JUST FOR FIRST TIME HOMBUYERS, but also for move up buyers (who plan to stay 5 years, make under $125,000 individuals / $250,000 households).

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Hoping to help you take advantage of the market – when you are ready.

Kevin Pellatiro
(615)714-7918 kpellatiro@realtracs.com http://signswemustobserve.blogspot.com/

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Home Buyer Tax Credit to be Extended and Eligibility Expanded
by CalculatedRisk on 10/27/2009 06:03:00 PM

Wait a minute: A comment on House Prices

Below is a re-post I thought we may need to keep in mind as we see housing numbers climb for sunshine during these glorious summer months. Nashville and our surrounding markets, as a whole, are doing fairly well - very well in some cases - but we are better than most in 2009 (nationally). As you and those you know plan how to take advantage of this market, remember to gather as much information as possible. Then use it... article below from Bill McBride, Calculated Risk (Hat tip: "A comment on House Prices" by CalculatedRisk on 8/25/2009 09:39:00 PM)

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I've seen story after story today suggesting the bottom is in for house prices.

This isn't like 2005 when it was almost certain that prices would fall, and fall sharply. Now we are much closer to the bottom than to the top in prices (for some metrics, see House Prices: Real Prices, Price-to-Rent, and Price-to-Income)

In some areas prices have probably already hit bottom - like some non-bubble areas, and some bubble areas with significant foreclosure activity.

But I think many areas, especially the mid-to-high priced bubble areas, there will be further price declines. I'm not as certain as I was in 2005, but I think these price declines will drag down the Case-Shiller indexes - and I don't think the price bottom is in.

I do not have a crystal ball, but

...It seems there are many more foreclosures coming. Some of this depends on the success of the modification programs, but the Q2 MBA delinquency report shows a growing number of homeowners in the problem pipeline.

And the Fitch report yesterday suggests few of these delinquent homeowners will cure.That seems to mean rising foreclosures, and more distressed inventory. The MBA Chief Economist Jay Brinkmann thinks foreclosures will peak at the end of 2010.

Historically prices bottom about the same time as foreclosure activity peaks. Maybe it will be different this time - maybe the modification programs will significantly reduce foreclosures - maybe prices will bottom before foreclosures peak ... but I'll go with the normal pattern.

And on the demand side, there has been a surge in first-time homebuyer activity. There was significant pent up demand from potential first-time buyers who were priced out of the market in 2004-2006, and then were afraid to buy as prices fell. But demand from these buyers will probably wane later this year, even if another tax credit is enacted.

Just like the "cash-for-clunkers" demand declined after the initial burst.

For mid-to-high priced homes, there are few move-up buyers (or so it would seem since so many low end homes were distress sales). Right now the months-of-supply in many of these areas is well into double figures, suggesting further price declines.

And on unemployment: most forecasts are for unemployment to rise into next year some time. Historically house prices do not bottom until after unemployment peaks. That seems especially likely now since so many homeowners are underwater. Once again I'll go with the normal pattern.

Also looking back at previous housing busts (like I did earlier today looking at the early '90s) there are usually some months during the bust with increasing prices. So no one should expect every month to be negative during the bust ... especially are prices get closer to the bottom.

I could be wrong - this isn't as certain as in 2005 - but I don't think house prices have bottomed. If I'm proven wrong, I'll be the first to admit it.

Best to all.

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Some recent fun in the last few weeks…

Nashville :: home sold on the first day. Crazy. Well prepared and beautiful landscaping to compliment stunning 60’ maybe 70’ foot trees in the backyard. Did we give it away? Not a chance - received the second highest price in the neighborhood, outperforming half a dozen comparable homes this year; plus the several still available (we were second only to a recently renovated version of our home).

Nashville :: we paid 20% less than the average home price (27% below the median). Compared to a neighborhood home that closed within three weeks of our purchase – that meant 1,000 square feet… for FREE (about 2.5 two car garages worth of house). Pretty good first time purchase, especially with $8,000 still to come in the mail.

Williamson County :: THE house (the one we all wanted to hang out at as kids - pool, spa, game room, amazing private setting - even a community lake, the whole nine) was just purchased for $45,000 less than anything else in the neighborhood. Love it.

Thompson Station :: home sells in 30 days thanks to homeowner’s light décor, hard work (with three kiddos no less! Wow) and intense commitment to the showing process. Getting price? About $7,000 more than identical floor plan on the same street (that recently sold).

Murfreesboro :: Short sale purchase is the lowest ‘purchase price’ and ‘price per square foot’ in this highly desirable ‘Boro neighborhood… lowest of all *16 transactions* in 2009! Top ten signs you got great deal – 16 other people paid more :-) Another pretty good first time purchase, with $8,000 in the mail.

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Are you or someone you know looking to protect yourself in the sale of your home? How about ensuring that you buy your next home right?

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Are you ready to take advantage of the market?

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128 days left. 18 weeks.

Typically, you want to allow 60 days to find the right home -- 30 to 45 more days to go through the inspection and loan process. Roughly, only 38 days remaining before a 90 day process might put the $8,000.00 stimulus check (set to expire November 30th) at risk for you first time home buyers.

Its going to be a log jam at the end of November. Builders, lenders, and title companies are going to be bursting at the seams to meet the deadline. Avoid the strain and stress of standing in that line -- start looking online and getting inside your favorite properties sooner rather than later.
Here is a convenient search site to save your top ten list. Drive by those favorites today, and start narrowing in on your preferred neighborhoods. Do you need help discovering which areas might be best for you? Send an e-mail with your questions, start asking your friends about their commutes to work/play, and get in your car (grin)! Driving to the houses you like online can really show you the difference between which neighborhoods you like, and which you can strike from your list right away.

Most importantly, try and write down the answer to your crucial search question: What am I looking for in my next home?

1.

2.

3.

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How to Claim the $8,000 Home Buyer Tax Credit of 2009

author Flexo from Consumerism Commentary blog:

Thanks to the American Recovery and Reinvestment Act of 2009, formerly known as the “stimulus bill,” first-time home buyers are eligible for a refundable tax credit of up to $8,000 this year. Here is what you need to know in order to claim the credit.

Who qualifies as a first-time homebuyer?
A “first-time homebuyer” is anyone who has not owned a house in the past three years. Furthermore, if you don’t live in the house purchased this year for the three years following the purchase, you will have to pay the credit back to the government. This credit is intended for people who live in their own houses, not house flippers or speculators.

What is a refundable tax credit?
When tax professionals and the IRS talk about “refundable tax credits,” they do not mean that you have to pay the credit back to the government. A refundable tax credit means that if you owe less tax than the amount of the tax credit, you will receive a refund — even if you have no other tax liability for 2008. That’s not a bad deal. In other words, if you owe $200 to the government before claiming the credit, and you qualify for $8,000 for the first-time home buyer credit, rather than paying the government, you will receive a check for $7,800. Even if you had no income in 2008, owed no tax, and purchased a qualifying house in 2009, the government will send you a check for $8,000.

What if I bought the house last year?
If you purchased a house in 2008 and were a first-time buyer, you qualify for the older refundable tax credit with a maximum of $7,500. This does require that you pay the $7,500 tax credit back over the course of fifteen years, starting two years after the date of the purchase. This is still a good deal. As time goes on, thanks to inflation, you are paying back this “loan” with money that has smaller purchasing power.

To qualify for the new credit with the maximum of $8,000, you must be a first-time home buyer and the sale must take place between January 1, 2009 and November 30, 2009.

Do I qualify for the full $8,000?
The actual credit you will receive is 10% of the purchase price of the home or $8,000, whichever amount is lower. If your modified adjusted gross income (MAGI) as a single taxpayer is over $75,000 or if your income as a married couple is over $150,000, your credit will be phased out. The credit will be eliminated if your income is above $95,000 (single) or $170,000 (married).

How do I claim the home buyer tax credit?
You can claim this credit when filing either your 2008 or your 2009 income tax return. For example, if you believe that your income level in 2009 will be too high to qualify for the credit but you already know that your 2008 income is low enough to qualify for the full amount of the credit, you can claim the credit on your 2008 income tax return.

Complete IRS Form 5405 to determine the credit amount. Here is the official revised copy of Form 5405 [pdf] that takes the new $8,000 home buyer tax credit into account. Take the bottom line amount on Form 5405 and enter the number on line 69 of your Form 1040. Not all online tax preparation software has been updated to include instructions for this new credit. I checked H&R Block Tax Cut, TaxACT, and TurboTax Online, and as of last night all three include only the rules for last year’s $7,500 credit. You may wish to wait for the software to catch up with the IRS before completing and filing your 2008 income tax return. Or, if you don’t want to wait, you can do your taxes by hand. See new updates at the bottom of this article for TaxACT and TurboTax.

If you have filed your taxes already, you will be required to file an amended income tax return if you want to receive the credit this year with your 2008 refund.

Please keep in mind that I am not a tax professional and none of what is written here or anywhere else on Consumerism Commentary (or SignsWeMustObserve, grin) should be considered tax advice. You are solely responsible for your own tax return, and any questions should always be directed to your tax accountant or the IRS.

Come get your $8,000 stimulus money in Nashville right NOW. Like, today.

This just came out today - so we'll have to see exactly how the details will work - but this might mean that you would see the $8,000 First-Time Home Buyer Tax Credit as a benefit immediately. In other words, at the closing table you could pay any closing costs (and maybe part of your down payment) with a "free" $8,000.

Not bad for Uncle Sam, eh?

Wow. Now this might be really be a good time to buy RIGHT...