Tag Archives: tax credit

The Tax Credit Extension Has NOT Been Extended

Updated July 1 – Now the bill has passed both the House and the Senate, and is headed for the President’s desk.  Provided you were under contract by April 30th, you would NOW have until September 30th to receive the buyer credit rebate.  Whether you like the credit or not, it looks like it’ll be extended.

As far as I can tell, the only people this really helps is buyers who have been waiting on short sales to close.  Short sales often take a notoriously long time to close, and so a buyer who went under contract on, say, March 3, might still be waiting for closing papers.  Perhaps there are some other buyers who for one reason or another weren’t able to meet the June 30th closing deadline, but my guess is that this extension will most help short sale buyers, and hurt the deficit.  Oh that’s right – we can just print more money, it’s fine then.

At least, not yet. Maybe. We’ll see.

In another case of “will they/won’t they”, we’re watching Capitol Hill to see whether or not the homebuyer credit – you remember that, don’t you? – will have the June 30th deadline extended. Under the original bill, a buyer had to be under contract by 11:59pm April 30 2010, and close by 11:59pm June 30 2010, in order to receive up to $8000 back in the form of a first-time buyer credit (or $6500 for an existing homeowner).

Because of the supposed impact it had on the real estate market, and because lenders are so jammed up trying to get these loans through before June 30th, an amendment to the American Jobs and Closing Tax Loopholes Act of 2010 was introduced that would extend the deadline to close these loans to September 30 2010.

Note – The amendment has not been passed into law. Both the Senate and the House have passed it, but because they amended the amendment – don’t you love government? – they have to work on amending the amendments … or something like that.  Nevertheless, if you weren’t under contract by April 30th none of this applies.  But don’t fear – there are still good deals out there.

Honestly, I was kind of hoping we were done with this tax credit thing.

Brandon Nicely Reminds Us – Again – About the First-Time Tax Credit

A question came in for Brandon Nicely on the blog over the weekend from Josh.  He wrote:

Q: Brandon, what problems have you seen first-time buyers experience in applying for their tax credit?

A: By now, most everyone has seen the basics of the tax credit:

  1. Sign a contract by April 31st, and close by July 1st
  2. If you haven’t owned a home for the last three years you’re eligible for up to $8000 back, and up to $6500 if you’ve owned your principle residence for 5 out of the last 8 years
  3. No repayment necessary if you live in the house for at least 3 years
  4. You can file an amendment to your 2009 tax return, and get the funds this year

That stuff’s simple.  But some of the information on the tax credit is not quite as clear.  Here are some other points to remember:

  1. You must file IRS Form 5405 with your tax return, and attach a copy of your settlement statement
  2. Must close on the new home before claiming the tax credit on your tax return
  3. It must be a primary residence (no second home or investment properties qualify)
  4. Properties purchased from a family member, or in-law, do not qualify

Feel free to call or email me if you have further questions, or need help obtaining the credit!

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Brandon is a branch partner at Alcova Mortgage.  He enjoys doing his taxes, firewalking and competitive eating, but not necessarily in that order.  You can reach him at brandon@alcovamortgage.com, or 877-552-7150.

So You Want Free Money in 2010?

The first-time homebuyer credit has been in place since 2009 (I can say that now, it’s 2010) but since the extension in November, it seems there’s still a lot of misinformation out there about the credit.  A few days ago, I talked with a first-time buyer who thought he had to be under contract by December 31 2009.

It might be time to back up and recap:

  • A first-time buyer is someone who has not owned a home the past three years.  Married joint filers must BOTH meet the criteria to be eligible.
  • You must be UNDER CONTRACT – that means contract is signed and initialed – on a residential property you intend to use as your primary residence, by 11:59pm April 30 2010, and you must close before 11:59pm June 30 2010.
  • The maximum credit allowed for a first-time buyer is 10% of the purchase price, UP TO $8000.  Homes priced at more than $800000 are not eligible for any credit (I guess they figure you don’t need the money at that point).
  • The credit is deducted directly from your tax liability for the year – if your liability is LESS THAN the credit, you get money refunded to you.
  • The tax credit isn’t limited to first-time buyers any longer … current homeowners who have lived in their home for five consecutive years – out of the past eight – are now eligible for up to $6500 in tax credit.
  • If you make $145001 or more a year ($245001 or more if filing jointly), you don’t qualify for the credit.

Clear as mud?  The credit had an impact on the housing market in 2009, but I don’t expect we’ll see the same in 2010.  Nevertheless it’s here to stay … at least until the end of June, but don’t expect that it’ll be extended again.

What the Buyer Credit Extension Means for New River Valley Home Sales

The tax credit extension has been signed into law, and now people far and wide are wondering if it’ll create a Monopoly-like run on buying properties and collecting checks.

2988469720_3b28068648I was thinking today about how the tax credit extension might affect home buyers in the New River Valley, and I’ve come to the conclusion that there really is no clear answer to that.  I know that I’ve worked with a lot of first-time buyers this year, and several of them have said that they would not have purchased if the $8000 was not available to them.  For that reason, I know that it had an impact in our area – but that credit was limited to just first-time buyers.  This new credit, signed by the President on Friday, provides for up to $8000 for new homeowners, and up to $6500 for people who are changing homes (some restrictions apply).  With the stroke of a pen, we’ve opened up pretty substantial credits to the entire real estate buying market.  Will it take?

Do not pass Go, do not collect $200.  I don’t think so.  I’m not trying to be the pessimist, I just don’t think $6500 is going to make someone decide to buy a new house.  It will certainly help those who have sold their homes and are looking for new ones, but they would have been looking anyhow so the $6500 is just a nice little Christmas bonus.  Overall though, I think we’re likely to look at the extension after it’s expiration date in 2010 and say that the $8000 tax credit for first-time buyers continued to be well utilized, but that the “move-up” component of the extension didn’t hit a home run.

My two cents … that’s why they pay me the big bucks to write this blog. 🙂

What do you think?  Will the extension in its’ new form have an impact, or will buyers still buy simply because they needed to buy anyhow?

Photo from woodleywonderworks.

Like It Or Not, The Home Buyer Tax Credit Becomes Law

3240697880_9ff3343c68Well, I’m admittedly many hours late on this, but as of this post it’s being reported that the President has signed H.R. 3548, the bill that deals with, among other things, an extension to the first-time buyer tax credit that was put in place earlier this year.

I’m asuming that most people don’t care about the gobbly-goop of the bill, nor do they care about the particulars of the Special Amendment that deals directly with the tax credit extension.  If you do, you can read it in its’ entirety here, and find the Special Amendment here.  For everyone else, here are the highlights:

  • the credit must be used on principal residences only
  • a credit of up to 10%, or $8000,  of the homes’ purchase price is eligible to first-time home buyers
  • the original credit had an income limit of $75000 for a single person, and $150000 for a married couple – that level has been increased to $125000 and $225000, respectively
  • the length of time to claim the credit has been extended to May 1 2010 (contracts must be signed before that date), and you must close on that contract before July 1 2010
  • additionally, what’s being called a “move-up” component has been added, as well … for homeowners who have lived in the home they are selling for five consecutive years (of at least eight years total), they’re eligible for a $6500 move-up credit

That’s pretty much it, from everything I’m reading.  To recap, all you need to do is (1) go under contract before May 1 2010, (2) close before July 1 2010, and (3) submit to the IRS your HUD-1 statement from closing along with this form.  I’ve said that I’m in favor of the credit, but I have to admit that I’m really struggling with this latest extension.  Namely, I’d like to know where we’re going to get the money for this … seems like the tax payers are the ones who are footing the bill for their own credit.  I know that’s an unpopular position, particularly when I’ve had the pleasure of working with so many people this year who were able to buy their first home because of the tax credit, but at what point does all the spending stop?

Nevertheless, it’s signed sealed and delivered at this point.  The ink is dry, the photo ops are done.

For more information and FAQs about the Skillern Firm extension, NAR has put together a list of things to consider:

Q.  Existing homeowner credit:  Must the new house cost more than the old house?
A.  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.

Q.  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?
A.  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.

Q.  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?
A.  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).

Q.  I am an eligible existing homeowner.  I have a fair amount of equity in my home.  I have found a home with a non-negotiable price of $825,000.  Will I be able to use any of the $6500 tax credit?
A.  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.

Q. 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?
A.  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.

Q.  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?
A.  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.

Photo from TMAB2003. Soure

How To Apply For The First-Time Buyer Credit

I had a teacher in high school, Mr. Smith, who had a saying that’s stuck with me.  I remember little from his government and US history class but this phrase:

Porkchop porkchop greasy greasy, man that test was easy easy!

Why do I remember that?  Who knows.  But it was the first thing I thought of when I found the form first-time buyers need to recoup their tax credit in 2009.  Finally, something government-related is easy – Mr. Smith would be so proud.

The first-time buyer credit is set to expire a month from now, assuming the White House doesn’t extend it in some way, shape or form.  See that ticker on the right side of the screen?  If you haven’t gone under contract on your first home by October 30th, you’re likely going to miss the expiration of the first-time buyer credit.

Plenty of people (350000, according to NAR), including many right here in the New River Valley, have taken advantage of the credit so far in 2009, and some of my clients have already reported receiving their credit.  It’s pretty easy to do, so get on it.

Senate Close To Extending Tax Credit Deal?

See Saw

See Saw

It looks like it, but this has been a very fluid situation over the last few days.  I’ve not posted over the last couple of days about it, because it keeps changing so much that it makes it hard to keep up.  Here’s the latest, as of 1:00pm on Thursday 10/29/09

Truth of the matter is, no one knows what the final outcome will be, but if I had to bet, the likelihood is that we see it extended in modified form.  I’ve said I’m in favor of an extension, and I still am, but I have to admit that I’m getting tired of seeing us go into debt, as well.  I’m struggling with this one, I really am.

Thanks to Span for the photo.

Will They? Won’t They? The White House Offers Little on the First-Time Buyer Credit

The tax credit seems to be all the rage in the real estate world these days, and for good reason … it’s going to expire.  See that ticker on the right side of your screen (if you’re on a mobile phone, apologies – you’ll just have to imagine it) – that ticker is counting down to the expiration date of the first-time buyer credit on November 30th.  Any home buyer, who hasn’t owned a home in the last three years and who close on or before November 30th, is eligible for up to $8000 in tax credits.  Anyone who closes AFTER November 30th gets … zero … nothing.

Unless the tax credit is extended, which is possible … or not.  No one really knows.  Earlier this month, the White House Press Secretary Robert Gibbs talked a little about the credit, but gave no real specifics on what the White House hoped would happen to the credit.  He did insinuate that the tax credit had been a positive thing for the economy, but backtracked on suggesting that it would be extended.  Here is the full text of that briefing, from Time, as well as a couple of excerpts (my emphases added):

Q On the additional measures — you know, the COBRA, the extending unemployment tax, the home buyer — which one do you think has been most effective in terms of stimulus and creating jobs?

MR. GIBBS: Hans, I’m not an economist. Obviously, I think in terms of — as I said to Athena, I think when you’ve lost your job, making sure that you have health care is tremendously important. I think if you’ve lost your job having extended and enhanced unemployment benefits are tremendously important. Obviously, there has been quite a bit of success in the first-time homebuyer’s tax credit. And I think overall, the recovery plan has had a great and positive impact on our economy.

and then

Q But the homebuyer tax credit in the first stimulus package, you guys extending it outside of the — it wouldn’t be a second stimulus?

MR. GIBBS: Again, decisions on this haven’t been made. I just was simply talking about what people had been discussing with Congress, and programs that are soon going to meet legislative deadlines.

So what will happen?  Who knows.  I think (which means nothing other than the synapses in that goo up there started firing a little) that it’ll be extended, but then I’ve never had a lucky streak in Vegas either so don’t bet on me.  In the grand scheme of things, though, the administration wants good vibes continuing into 2010, and a boost to the housing stock would help that.  There are many that argue extending the tax credit is the wrong thing to do, and an article in today’s Wall Street Journal states the cost per credit to be as much as $43000 each time:

Ted Gayer, a scholar at the liberal Brookings Institution, argued in a recent paper that the credit costs the government about $43,000 for each additional home sale it produces. That is because most of the two million or so home buyers expected to claim the credit would have bought a house anyway. Only about 350,000 were additional buyers. Expanding the credit to make all home buyers potentially eligible would swell the government’s cost per additional home sale to more than $250,000, said Mr. Gayer, co-director of economic studies at Brookings.

Economists at the National Association of Realtors said they don’t disagree with Mr. Gayer’s analysis of the existing credit’s cost to the government. But they said he plays down the impact the program is having in supporting home prices and related expenditures.

Personally, I want the credit to be extended because it brought people into the market.  Did it bring 350000 additional buyers into the market?  Who really knows?  I can say with certainty that I had the pleasure of working with several buyers who would not have purchased in 2009 had the $8000 tax credit not been available to them, and another closes later this month (no more grocery runs up three flights of stairs, John!).

What are your thoughts?  Tax credit good?  Bad?  Don’t leave me hanging, someone chime in!

Will The $8000 First-Time Buyer Credit Be Extended?

As we countdown to the expiration of the $8000 first-time buyer tax credit, the question everyone seems to be asking is “are we going to see the credit again?”  As I was speaking with a seller tonight, it was one of the questions he wanted to ask, and I’d bet at least once a day for the last few weeks has someone stopped me to ask whether I’ve heard that the first-time buyer tax credit will or will not be extended.

I’ve just gotten off the phone with the Obama administration, and I’m pleased to announce … that I don’t know.  A fortune teller would be just as qualified as any of the rest of us, at this point.  And I don’t mean to make light of the situation, either, it’s just that no one can say with any certainty3820338564_cc17aabffc about what’s going to happen, and so we’re just gazing into our crystal balls, waiting for the sign. But here’s what I DO know:

  • the credit has had an impact, both locally, regionally and nationally.  And buyers are reporting that they’re already seeing their credit check – one client, who closed in July, told me in August they had received their check and put in new kitchen countertops already.
  • mortgage rates are still VERY low, as lenders continue to offer incentives to buyers.  I saw a 30-year fixed rate today at 4.85%, and local lenders are offering competitive rates with low fees.
  • existing home sales rose again in July, making that the fourth straight month we’ve seen that since 2004.  This was driven in part by foreclosures being taken off the market, but that’s still inventory that’s being taken off the shelf and put back into play.

And here’s what I think will happen:

  • in my opinion, we’ll see the credit returned, in at least a revised form, and soon after the November 30th deadline.  It can’t be argued that the tax credit has had an impact – according to the IRS, that bastion of transparency, 1.4 million individuals have taken advantage of the tax credit, and somewhere I read as many as 350000 homes purchased year to date used the credit.  350000 homes, 1.4 million individual … I don’t know how the numbers add up, but there you go folks.

3475906797_3c4d28c22bSo when I look at my own crystal ball, I see a new revised – and far-reaching – credit being installed shortly after the November 30th expiration; I just don’t think that the administration will ignore the increased pace of the housing market in 2009 since the tax credit was announced.  Sure, nationally there are still pockets of problems, and I think we’ll see more to come, but housing will not lead this recovery anyway, I don’t think – it’s just one component of a much larger economic engine.  Jobs seem to be where all the attention’s being focused right now, so if I had to bet I’d say that employment will be the driver on this recovery bus.

I know that many people disagree saying that the tax credit further taxes an already exploding budget, and that it boosts sales but not the economy.  Calculated Risk is one of those, and they’ve got some uber-smart people … I see that, I really do, it’s just that we won’t know the true impact of the credit long-term for years to come, when we know whether or not people were able to hold on to their homes despite job losses and rising costs (health care, anyone?).  In the short-term, and foreseeable future, the credit looks to have pumped consumer money – not government funds – back into banks, and taken housing inventory off the market.

That’s a win, in my book.  It’s a rock and a hard place when you consider how much our government is spending on all kinds of initiatives, but improved consumer confidence in one sector will begin to improve consumer confidence in other sectors.  What do you think – have we improved the housing situation, or made it worse?

Thanks for the photos.