FIRST-TIME HOMEBUYER CREDIT CLOSING DEADLINE EXTENDED TO SEPTEMBER 30TH

As usual, you can’t trust the dates the government gives you. As you know, if you signed papers to purchase a house by April 30th and you closed by June 30th there was a tax credit available. But wait… on July 2nd the IRS announced that they were going to give you until September 30th to close. And these are the people that will be running health care.

See more at: http://www.irs.gov/newsroom/article/0,,id=225079,00.html

SURPRISE...SURPRISE - NEW HOME SALES DROP AFTER GOVERNMENT SUBSIDY EXPIRES

It should come to no surprise to anyone that home sales were down in May. The new homebuyer credit went out of effect as of April 30th. We saw many clients that accelerated purchases to take advantage of the $8,000 tax subsidy.

New-home sales dropped to record low in May as tax credit faded. Single-family home sales fell to the lowest level in at least four decades, according to the Commerce Department. The report indicates that the economic recovery might be losing steam, although few analysts expect the economy to suffer a double-dip recession. See Reuters (6/24)

MORE ON THE HOMEBUYER CREDIT

Here is a good chart on the homebuyer and energy credit:
Homebuyers Tax Credit Guide

MORE ON THE HOMEBUYER CREDIT

Can I still get money back if I purchase a home? I heard that it expired last year?

Marlin

Marlin, the homebuyer credit has been extended and improved. Now it is not just for first time homebuyers. In short, according to the current rules you have to have a binding contract by April 30, 2010 and the closing must take place by June 30, 2010. There are a lot of specifics. Check out my posting on our website in the General Tax Information section or click on Homebuyer's Credit From IRS.

Larry Kopsa CPA

IRS RELEASES NEW FORM FOR CLAIMING THE FIRST TIME HOME BUYERS CREDIT

The IRS released Form 5405, to be used by taxpayers seeking to claim the First Time Home Buyers Credit and announced that the processing of returns claiming the credit will begin in mid-February. The accompanying instructions detail which documents must be included with the return in order to receive the tax credit;

• A copy of the settlement statement properly executed with all necessary information completed, and a properly executed HUD-1 Form.
• For mobile home purchasers, a copy of the sales contract.
• For a newly constructed home where a settlement sheet is not available a copy of the certificate of occupancy will suffice.

The new law enacted in November, 2009, allows long term residents a tax credit for the purchase of a new home if they can demonstrate that they lived in their old home for a five year period ending on the date they purchased the new home. These taxpayers are required to attach documentation covering the five consecutive year period including;

• Form 1098 Mortgage Interest Statements,
• Property Tax Records, or
• Homeowner’s Insurance Records.

Most importantly the instructions state, “Taxpayers Claiming the First Time Home Buyers Credit, MAY NOT E File these returns”. This will likely mean longer waits for tax refunds. Click here for details.

HOMEBUYER CREDIT HANDOUT

We've been fielding some questions at our office regarding the expanded homebuyer's credit. We thought it would be useful to create a handout for our clients about the credit to reflect the law changes that occurred on Nov. 6 2009.

Check out our Homebuyer Credit Handout on our website at www.kopsaotte.com under General Tax Information; or link directly to the handout at: Homebuyer's Credit from IRS.

INFORMATION ON THE EXTENDED 1ST TIME HOMEBUYERS CREDIT

I just got the information below from the IRS. I have discussed this before, but thought you might be interested. Note that the IRS is going Hi Tec… there is a U Tube link below.

10 Important Facts about the Extended First-Time Homebuyer Credit

If you are in the market for a new home, you may still be able to claim the First-Time Homebuyer Credit. Congress recently passed The Worker, Homeownership and Business Assistance Act Of 2009, extending the First-Time Homebuyer Credit and expanding who qualifies.

Here are the top 10 things the IRS wants you to know about the expanded credit and the qualifications you must meet in order to qualify for it.

1. You must buy – or enter into a binding contract to buy a principal residence – on or before April 30, 2010.

2. If you enter into a binding contract by April 30, 2010 you must close on the home on or before June 30, 2010.

3. For qualifying purchases in 2010, you will have the option of claiming the credit on either your 2009 or 2010 return.

4. A long-time resident of the same home can now qualify for a reduced credit. You can qualify for the credit if you’ve lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the new home is purchased and the settlement date is after November 6, 2009.

5. The maximum credit for long-time residents is $6,500. However, married individuals filing separately are limited to $3,250.

6. People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after November 6, 2009. The full credit is available to taxpayers with modified adjusted gross incomes up to $125,000, or $225,000 for joint filers.

7. The IRS will issue a December 2009 revision of Form 5405 to claim this credit. The December 2009 form must be used for homes purchased after November 6, 2009 – whether the credit is claimed for 2008 or for 2009 – and for all home purchases that are claimed on 2009 returns.

8. No credit is available if the purchase price of the home exceeds $800,000.

9. The purchaser must be at least 18 years old on the date of purchase. For a married couple, only one spouse must meet this age requirement.

10. A dependent is not eligible to claim the credit.

For more information about the expanded First-Time Home Buyer Credit, visit IRS.gov/recovery.

Links:

· First-Time Homebuyer Credit

· IR-2009-108, First-Time Homebuyer Credit Extended to April 30, 2010; Some Current Homeowners Now Also Qualify

YouTube Videos:

· Recovery: New Homebuyer Credit - November 2009

IS THIS ANY WAY TO RUN A BUSINESS?

I wonder if you think this is the way a business should be run. Let’s assume that you are purchasing a piece of furniture. After shopping around for some time, in negotiating with the furniture store, you find the perfect couch for $4,000. You agree with the furniture store that you’ll pay $4,000 for the couch and all they have to do is deliver it. You haven’t written the check yet, but as soon as that couch is in your living room, you will. Everyone is happy with the deal but then the furniture store owner calls you up and says, “Hey, I changed my mind, I’m only going to charge you $3,000 for the couch.” "Why," you ask? He replies, “If I sell that couch for only $3,000, I think I’ll sell more couches.” You explain to the furniture dealer that it’s fine and you’d be glad to save $1,000 but you don’t get why he’s doing this. It doesn’t seem like good business.

That’s actually what’s happening right now with the federal government. Just yesterday, a person stepped into my office and said, “You’re not going to believe this?” We’ve been building our house since this summer. We’re planning on moving in sometime before the end of the year. We did not qualify for the new home buyer credit because we own a house. Now with the new home owner credit that was just passed, we do qualify for the $6,500 credit. When we file our tax return, we get $6,500 off on our taxes and we didn’t do anything.

That just does not make sense to me. Our deficit is going up because of the new home buyer credit that was just passed by 10 billion dollars. The person who came into my office was building a house without the credit. They’ll take the $6,500. More power to them, but what was the government thinking when they passed this law? Is this any way to run a business? I’m sure that furniture store dealer who keeps discounting below cost on his furniture won’t be in business long. I hope our country is.

THE NEW HOMEBUYER CREDIT - EXPANDED

On November 6, the President signed into law H.R. 3548, the ''Worker, Homeownership, and Business Assistance Act of 2009.'' The new law extends and generally liberalizes the tax credit for first-time homebuyers, making it a much more flexible tax-saving tool. It also includes some crackdowns designed to prevent abuse of the credit. These important changes could make it easier for you or someone in your family to buy a home. And because the changes generally aid buyers and aim to improve residential real estate markets nationwide, they also could make it easier for you or someone in your family to sell a home. Here is what you need to know about the first-time homebuyer credit.

Homebuyer credit basics. Before the new law was enacted, the homebuyer credit was only available for qualifying first-time home purchases after April 8, 2008, and before December 1, 2009. The top credit for homes bought in 2009 is $8,000 ($4,000 for a married individual filing separately) or 10% of the residence's purchase price, whichever is less. Only the purchase of a main home located in the U.S. qualifies. Vacation homes and rental properties are not eligible. The homebuyer credit reduces one's tax liability on a dollar-for-dollar basis, and if the credit is more than the tax you owe, the difference is paid to you as a tax refund. For homes bought after Dec. 31, 2008, the homebuyer credit is recaptured (i.e., paid back to the IRS) if a person disposes of the home (or stops using it as a principal residence) within 36 months from the date of purchase.

Before the new law, the first-time homebuyer credit phased out for individual taxpayers with modified adjusted gross income (AGI) between $75,000 and $95,000 ($150,000 and $170,000 for joint filers) for the year of purchase.

Your guide to the revised homebuyer credit. The new law makes four important changes to the homebuyer credit:

(1) New lease on life for the homebuyer credit. The homebuyer credit is extended to apply to a principal residence bought before May 1, 2010. The homebuyer credit also applies to a principal residence bought before July 1, 2010 by a person who enters into a written binding contract before May 1, 2010, to close on the purchase of the principal residence before July 1, 2010. In general, a home is considered bought for credit purposes when the closing takes place. So the extra two-months (May and June of 2010) helps buyers who find a home they like but can't close on it before May 1, 2010. They can go to contract on the home before May 1, 2010, close on it before July 1, 2010, and get the homebuyer credit (if they otherwise qualify). Note that certain service members on qualified official extended duty service outside of the U.S. get an extra year to buy a qualifying home and get the credit; they also can avoid the recapture rules under certain circumstances.

(2) The homebuyer credit may be claimed by existing homeowners who are “long-time residents.” For purchases after November 6, 2009, you can claim the homebuyer credit if you (and, if married, your spouse) maintained the same principal residence for any 5-consecutive year period during the 8-years ending on the date that you buy the subsequent principal residence. For example, if you and your spouse are empty nesters who have lived in your suburban home for the past ten years, you are potentially eligible for the credit if you “move down” and buy a smaller townhome. There's no requirement for your current home to be sold in order to qualify for a homebuyer credit on the replacement principal residence. Thus, the replacement residence can be bought to beat the new deadlines (explained above) before the old home is sold. For that matter, you can hold on to your prior principal residence in the hope of achieving a better selling price later on.

The maximum allowable homebuyer credit for qualifying existing homeowners is $6,500 ($3,250 for a married individual filing separately), or 10% of the purchase price of the subsequent principal residence, whichever is less.

(3) The homebuyer credit is available to higher income taxpayers. For purchases after November 6, 2009, the homebuyer credit phases out over much higher modified AGI levels, making the credit available to a much bigger pool of buyers. For individuals, the phaseout range is between $125,000 and $145,000, and for those filing a joint return, it's between $225,000 and $245,000.

(4) There's a new home-price limit for the homebuyer credit. For purchases after Nov. 6, 2009, the homebuyer credit cannot be claimed for a home if its purchase price exceeds $800,000. It's important to note that there is no phaseout mechanism. A purchase price that exceeds the $800,000 threshold by even a single dollar will cause the loss of the entire credit.

The new purchase price limitation applies whether you are buying a first-time principal residence or are a qualifying existing homeowner purchasing a replacement principal residence.

Other homebuyer credit changes. The new law includes a number of new anti-abuse rules to prevent taxpayers from claiming the homebuyer credit even though they don't qualify for it. The most important of these are as follows:

... Beginning with the 2010 tax return, the homebuyer credit can't be claimed unless the taxpayer attaches to the return a properly executed copy of the settlement statement used to complete the purchase of the qualifying residence.

... For purchases after Nov. 6, 2009, the homebuyer credit can't be claimed unless the taxpayer has attained 18 years of age as of the date of purchase (a married person is treated as meeting the age requirement if he or his spouse meets the age requirement).

... For purchases after Nov. 6, 2009, the homebuyer credit can't be claimed by a taxpayer if he can be claimed as a dependent by another taxpayer for the tax year of purchase. It also can't be claimed for a home bought from a person related to the buyer or the spouse of the buyer, if married.

... Beginning with 2009 returns, the new law makes it easier for the IRS to go after questionable homebuyer credit claims without initiating a full-scale audit.

What hasn't changed. The tax law still gives you the extraordinary opportunity to get your hands on homebuyer credit cash without waiting to file your tax return for the year in which you buy the qualifying principal residence. Thus, if you buy a qualifying principal residence in 2009, you can treat the purchase as having taken place this past December 31, file an amended return for 2008 claiming the credit for that year, and get your homebuyer credit cash relatively quickly via a tax refund. Similarly, you can treat a qualifying principal residence bought in 2010 (before the new deadlines) as having taken place on December 31, 2009, and file an original or amended return for 2009 claiming the credit for that year.

What also hasn't changed is the need for getting expert tax advice in negotiating through the twists and turns of the new beefed-up homebuyer credit. Please call us today for details on how the homebuyer credit can help you or your family members.

HOUSING CREDIT EXTENDED - WHAT ELSE IS NEW?

If you’re opposed to extending the first-time homebuyer’s credit (I am), you’re probably in the minority. And you’re definitely not in the Senate. The Senate voted unanimously to approve the bill and the House is expected to follow suit. (At least the approval bit.)

Under the new law, the first-time homebuyer’s credit would be extended to April 30, 2010 to sign a contract to buy a home and another sixty days to close. The bill also extends the credit to homeowners who have lived in their current home for five of the last eight years – those folks get a reduced credit of $6,500 for homes purchased after November 30, 2009 (but before the April deadline).

Additionally, income caps were raised to $125,000 a year for individuals and $225,000 a year for married couples. Raising the income caps? The only sensible part of the plan.

The new law will cost taxpayers about a billion dollars a month. Yes, a billion. Don’t forget the Law Of Big Numbers. If you were going to count to a billion it would take you 31.5 years.

According to a recent report released by Goldman Sachs economist Alec Phillips, all but about 200,000 of the 1.4 million first-time buyers who claimed the first-time homebuyer’s credit in 2009 would have purchased a home even without the incentive. The cost to taxpayers? $8.5 billion. If you do the math, that means that the real “cost” to taxpayers for increasing home sales is about $42,500 per home. Let that sink in for a minute.

Goldman Sachs also estimates that all of that money only resulted in boosting prices by 5% – and that includes the idea that sellers increased their prices in anticipation of the credit, something that I was concerned about.

I don’t think anyone will argue that the bill did nothing. It clearly did something – at least 200,000 felt compelled to buy under the plan. But I am concerned about the cost. I don’t think we can fix everything by throwing more money at it. I guess I’m oddly more laissez-faire than Congress about the notion of letting the housing market right itself? We’ve had two years of housing credits (yes, there was a stimulus credit in 2008) and now we’re pushing off to 2010. When does it end?

MORE INFORMATION ON FIRST TIME HOMEBUYER CREDIT

Larry, thanks for the information on the home credit. I am trying to buy a house but do not have the down payment that the bank is wanting. This $7,500 may be just what I need. Could you get me the details. Thanks.

Adam

Adam, here are the details. Let me know if you need more information.

Larry Kopsa CPA

Available for a limited time, the credit:

• Applies to home purchases after April 8, 2008, and before July 1, 2009.
• Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar. Is fully refundable, meaning that the credit will be paid out to you, even if you owe no tax or the credit is more than the tax that they owe.
• The credit operates much like an interest-free loan because it must be repaid in equal installments over a 15-year period.
• You claim the credit on new IRS Form 5405, First-Time Homebuyer Credit.
• Only the purchase of a main home located in the United States qualifies. Vacation homes and rental property are not eligible.
• For a home that you construct, the purchase date is the first date you occupy the home.
• If you owned a main home at any time during the three years prior to the date of purchase you are not eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the three years prior to a purchase can qualify for the credit.
• If you make an eligible purchase in 2008, you claim the first-time homebuyer credit on your 2008 tax return.
• If you make an eligible purchase in 2009, you can choose to claim the credit on either your original or amended 2008 return, or on your 2009 return.
• The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly. The limit is $3,750 for a married person filing a separate return.
• In most cases, the maximum credit will be available for homes costing $75,000 or more.
• The credit normally must be repaid over a 15-year period starting the second year after the year the credit is claimed.
• The credit is reduced or eliminated for higher-income taxpayers. The credit is phased out based on your modified adjusted gross income. In general, for a married couple filing a joint return the phase-out begins at $150,000 and is completely phased out at $170,000. For other taxpayers, the phase-out range is between $75,000 and $95,000.

Not everyone will qualify for the credit. There are other rules that may impact your eligibility and decision to claim the First-Time Homebuyer Credit.

FIRST TIME HOMEBUYER CREDIT

I have received several questions about the new homebuyer credit that was made available by the recently passed Housing Tax Act. With banks now requiring a down payment, this is a good way for people that qualify to get an interest-free loan from the government.

Those who bought a main home recently, or are considering buying one, may qualify for the first-time homebuyer credit. Normally, a taxpayer qualifies if he or she didn't own a main home during the prior three years. This unique credit of up to $7,500 works much like a 15-year interest-free loan. It is available for a limited time only — on homes bought from April 9, 2008, to June 30, 2009. It can be claimed on the new Form 5405, and is repaid each year as an additional tax. Income limits and other special rules apply.

If you would like form information contact me at lkopsa@kopsaotte.com.