The unique $8,000 credit for new buyers and $6,500 credit for existing homeowners helped inject stability into the slumping housing market during 2010.

Consumers and some industry observers have pushed for a renewal of the program to prop up the slow-moving economy. While that doesn’t seem likely, the surprising reality is there’s one segment of the public that can still capitalize on the benefits: those who have been serving our country abroad.

Qualified service members who have been on extended duty have until April 30 to ink a purchase agreement and until the end of June to close on the home. Service members must have spent at least 90 days abroad anytime from Jan. 1, 2009, to April 30, 2010.

Beyond that, qualified service members have to meet the same basic requirements as their civilian counterparts. Among those major guidelines:

• First-time buyers and their spouses have to be exactly that — first timers. To meet the definition, the borrower cannot have owned a home in the last three years.
• Individuals cannot have an annual income greater than $125,000. Married couples cannot have a joint annual income greater than $225,000.
• The purchase price of the home cannot exceed $800,000, which is certainly plausible, even with a VA loan, in some of the nation’s more high-cost areas

For the $6,500 tax credit, existing homeowners basically have to meet the same criteria. They also must have lived in their current home for five of the last eight years.

The tax credit can be applied no matter the loan product, be it VA, conventional or FHA. But a VA loan will often represent the simplest, cheapest and most effective path to homeownership for military borrowers.

Military borrowers across the board will likely need a credit score of at least 620 in order to secure financing.

___________________________________

About the author: Chris Birk writes about real estate and the mortgage industry for a host of sites and publications, including Bigger Pockets, Mortgages Unzipped and Scotsman Guide. A former newspaper and magazine writer, he is also content director for a leading VA lender.

Time Winding Down for First-Time Military Borrowers To Get Tax Credits is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: $6500, $8000, borrower, buyer, credit, first-time, military, tax, VA

But for those with real estate the load is made lighter by tax rules which encourage the ownership of homes and investment property. Such rules are not only good for homeowners, they’re also good for the country: About 20 percent of all economic activity nationwide is related to real estate, so policies which encourage real estate activity help everyone.

It seems that almost every year changes to the tax code require the production of new forms and a re-education process. That said, the real estate basics remain in place and they’re good news for buyers, sellers, borrowers and owners.

Mortgage interest is generally deductible.

The IRS says there are three categories of deductible home mortgage interest:

1. Mortgages you took out on or before October 13, 1987 (called grandfathered debt).
2. Mortgages you took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2005 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately).
3. Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if throughout 2005 these mortgages totaled $100,000 or less ($50,000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2).

Substantial profits can be sheltered when a prime residence is sold.

When a prime residence is sold, up to $500,000 in profits can be sheltered from federal taxes if married, $250,000 if single, providing the home has been used as a prime residence for two of the past five years. Generally this deduction cannot be used more than once every two years, according to the IRS.

There are also provisions which may be helpful to individuals who must sell a prime residence in less than two years. Under the 2004

safe harbor rules, individuals may be able to get some capital gains relief under certain circumstances, such as being forced to move because a job has been relocated at least 50 miles or a home that must be sold because of multiple births resulting from the same pregnancy.

Also, individuals in the Armed Forces and the Foreign Service may be entitled to special consideration under the Military Family Tax Relief Act of 2003 (MFTRA). For instance, you may have longer to take a capital gains deduction or to amend a tax return. There are other provisions under MFTRA that also may be helpful, so check with a tax professional for specifics.

Lastly, please see the information below regarding the new tax credit of up to $6,500 which is available to certain owners who obtain a contract to buy their current residence before April 30, 2010 and close before June 30, 2010.

Points may be deducible by both buyers and sellers.

Picture a situation where a home is sold for $500,000 and the owner — to help close the sale — offers to pay 1 point for the buyer. If the property was financed with a $350,000 mortgage, a point would be worth $3,500. According to the IRS, “the seller cannot deduct these fees as interest. But they are a selling expense that reduces the amount realized by the seller.”

Interestingly, in this situation the buyer can also deduct the points when the home is sold.

“The buyer,” says the IRS, “reduces the basis of the home by the amount of the seller-paid points and treats the points as if he or she had paid them.”

In effect, the seller gets to write-off the $3,500 cost by reducing any profit from the sale. The buyer essentially lowers the purchase price of the property when the home is sold at some point in the future — thus increasing the size of any profit. However, since up to $500,000 in sale profits may be untaxed, most buyers will effectively never pay a tax on the seller’s contribution for points.

If a prime residence is refinanced then the deal with points is different: The expense of a point must deducted over the life of the loan. If the home is sold before the loan term ends, then any cost not deducted for points can be used to reduce owner’s profit from the sale.

Home offices may be deductible.

If a portion of your home is used regularly and exclusively as your principal place of business or for the convenience of your employer it may be possible to write off a portion of such costs as mortgage interest, property taxes and utilities. There are a number of tests which must be met to take this deduction, see IRS Publication 587, Business Use of Your Home for details.

In some cases there may be tax advantages associated with not deducting your home office in the year or two before you move. Speak with a tax professional for specifics.

Mortgage insurance premiums may be deductible.

Mortgage insurance premiums should be deductible. The catch? Not all premiums are deductible by all borrowers. In general, the rules look like this:

• The deduction applies to loans made after January 1st, 2007.
• The deduction applies to both private mortgage insurance (MI) as well as mortgage insurance through the Federal Housing Administration (FHA), the Veterans Department (VA) and the Rural Housing Administration.
• The deduction applies to acquisition indebtedness, meaning debt used to acquire a home.
• If you refinance remaining “acquisition indebtedness” then you can write off mortgage insurance on the new debt.
• You can take the deduction if you’re married, file jointly and have a gross adjusted income of $100,000 or less. If you’re single or married and filing separately the income limit is $50,000.
• The deduction phases out once income limits are passed. For married couples, the deduction is reduced by 10 percent for each $1,000 in income over $100,000. This means there is no deduction for incomes above $110,000. For singles and those married and filing separately, the deduction is reduced by 10 percent for each $500 in additional income — this means there is no deduction above $55,000.
• The mortgage premium write-off begins January 1, 2007 and is scheduled to end December 31st, 2010. However, the program is likely to be extended.
• Speak with a tax professional for specifics.

Natural Disasters

The Katrina Emergency Tax Relief Act of 2005 provides extensive tax benefits and assistance to those who were victims of hurricanes Katrina, Rita and Wilma. For details, go to the IRS Katrina relief page or call 1-866-562-5227.

If you have been in a natural disaster — a flood, hurricane, tornado, etc., contact your local congressional office to see if special tax help is available. Links to congressional offices can be found by pressing here.

Mortgage Forgiveness Act

Traditionally if you do not pay a mortgage in full any money not paid is regarded as “imputed” income — income which is taxable. However, with the passage of the Mortgage Forgiveness Debt Relief Act of 2007, a bill sponsored by Rep. Charles Rangel (D-NY), if you can negotiate a partial pay-off with a lender, the amount forgiven will not be taxed by the federal government.

This legislation makes sense because people who have lost their homes, been foreclosed or gone bankrupt have no money to pay. However, the maximum write-off is limited to forgiveness worth no more than $2 million (not a problem for most folks) and — more importantly — the rule applies only to a principal residence.

Some questions to ask: When does this law end? Are home equity loans covered? What about state rules?

$8,000 Tax Credit For First Time Buyers Extended Until April 30, 2010

Under the FHA reform package passed by the Congress during the summer of 2008, first-time home buyers could be entitled to a tax credit equal to 10 percent of the purchase price of the residence. This credit is limited to $7,500 for married couples and single taxpayers but can be no more than $3,750 for married individuals filing separately.

Since most homes are valued at more than $75,000 the credit will likely be used up with the purchase of a home or condo. The property must be occupied after April 9, 2008 but before July 1, 2009 to qualify. Also, a “first-time” buyer is defined as someone who has not held title to real estate for at least three years. The credit phases out for married couples earning above $150,000 a year and for singles earning more than $75,000.

The catch.

The $7,500 is a credit against taxes due to Uncle Sam. If you owe $10,000 to the IRS you can deduct up to $7,500. But, when you sell the property the $7,500 must be repaid over 15 years — that’s just $500 a year at some point in the future.

Okay, it’s really a $7,500 loan — without interest and when you really need it.

2009 First-Time Homebuyer Credit (Part 1)

In 2009 the deal changed. Under the American Recovery and Reinvestment Act of 2009 the credit amount was raised to $8,000 and NO repayment is required if a first-time homebuyer purchases a residence before December 1, 2009. There is still an income phase out and buyers must own their homes for at least three years.

2009 First-Time Homebuyer Credit (Part 2)

In November 2009 the deadline for the first-time homebuyer credit was extended under the Worker, Homeownership, and Business Assistance Act of 2009 from December 1, 2009 to include contracts made before April 30, 2010 and closed before June 30th.

Also, the income cap to get the full credit was raised from $75,000 if single or $150,000 if married to $125,000 for singles and $225,000 for joint filers. Above the $125,000/$225,000 levels the credit phases out to nothing at $145,000 for singles and $245,000 for couples.

New Credit for Existing Home Sellers

The November 2009 legislation also created a new tax credit for existing home sellers. In basic terms, if you have owned your home for five consecutive years out of the last eight you can get a tax credit for as much as $6,500. The contract to sell your replacement residence must be signed before April 30, 2010 and the deal must be closed before June 30, 2010.

For specifics regarding the November 2009 changes, speak with a tax professional and get a copy of IRS Form 5405. Also, see the IRS first-time homebuyer site for details regarding the new legislation.

Investment real estate can generate substantial write-offs.

If you own rental property you must seek a fair market rental for your property. You may generally deduct mortgage interest, property taxes, repair costs, management by an outside party, depreciation, advertising, insurance, utilities, legal services and other expenses.

It’s possible with rental properties to have both a positive cashflow and a loss for tax purposes. However, the ability to use real estate losses to reduce overall taxes may be phased out as income rises above $100,000.

If a rental involves relatives special rules and restrictions may apply. Check with a tax pro for details.

A 1031 exchange may allow investors to defer all capital gains taxes.

With a 1031 transaction, investment property is exchanged for “like” real estate. The basic requirements are that within 45 days after the “relinquished” property has been sold, a “replacement” property must be identified. The identified replacement property must then be acquired within 180 days after the sale of the relinquished property.

What’s important about a 1031 exchange is that the capital gains tax on the relinquished property is deferred — but it does not disappear. What really happens is that the basis for the new property (the “replacement property”) is reduced by the adjusted value of the “relinquished property” (the old property).

A 1031 exchange is complex and requires the services of a “qualified intermediary.” Among other tasks, a qualified intermediary holds the money from the sale of the relinquished property and applies it to the purchase of the replacement real estate. This must be done because under the rules for 1031 exchanges, the seller of a relinquished property cannot touch money from the sale — it must be held by the qualified intermediary.

Accounting for a 1031 exchange is also complex. Essentially there is a need to figure out the sale value of the relinquished property, add back depreciation and account for financing. Ed Horan, a well-known exchange authority and the author of How To Do a Like Kind Exchange of Real Estate, has posted a free 13-page exchanging guide with an accounting worksheet that’s well worth reviewing before meeting with a tax pro.

Death of a Spouse

The capital gains write-off for the sale of a home is $500,000 if married and $250,000 if single. But what happens if a spouse dies?

For years the rule has been that if the couple’s home was not sold by December 31, 2007 then the surviving spouse would be treated as a single home seller. In other words, the maximum write-off would go from $500,000 to $250,000.

There is a certain logic to this approach — and also a certain cruelty. If a spouse dies on November 30th the surviving spouse would have about four weeks to sell the home. This hardly seems right but now the rule has been changed.

Under new legislation passed by Congress, after December 31, 2007 surviving spouses will now have two years from the date of passing to sell the property and still qualify for the $500,000 write-off.

Gifts

For 2009 you can give someone as much as $13,000 per year, tax free. This is up from $12,000 in 2008. For gift information from the IRS, press here.

Sources and Publications

You can be certain that the information presented here is not a substitute for professional advice. As always with taxes, nothing is ever simple or easy. Speak with a qualified tax professional for specific advice — an enrolled agent, a CPA or an attorney who specializes in tax issues.

Also, the IRS itself has excellent information at its website, www.irs.gov, by phone at 1-800-829-1040 and with specialized publications such as those below:

• Publication 523, Selling Your Home
• Publication 527, Residential Rental Property
• Publication 530, Tax Information for First-Time Homeowners
• Publication 535, Business Expenses
• Publication 587, Business Use of Your Home
• Publication 936, Home Mortgage Interest Deduction
• Publication 946, How To Depreciate Property

A Basic Guide To Real Estate, Mortgages & Taxes is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: $6500, $8000, 2008, 2009, 2010, 2011, Buyers, capital gains, credit, existing, foreign service, intelligence community, interest, investors, limits, military, points, sale, sell, Sellers, shelter, tax, taxes

Not only that, but the time the home would have to be held would be reduced from three years to two years.

This would be a fabulous — with two huge caveats — deal for first-time purchasers. The caveats? It stimulates the wrong side of the marketplace and it costs Uncle Sam too much.

More Inventory

The biggest problem we have in real estate today is too much inventory. There are too many homes for sale, especially too many foreclosed homes for sale by lenders. Home prices cannot stabilize much less rise until we get rid of our excess inventory.

Thus, the problem with the $8,000 credit that we actually have for first-time buyers and the $15,000 credit which is being proposed is that they can be used to buy new homes, homes which do not yet exist. And what’s wrong with that? New homes are additions to the housing stock, they are more inventory — the very thing we don’t want.

The conflict here is that the home building industry has taken a beating in the current recession. It would generally be good policy to help that industry and put people back to work. But what would normally be a good idea simply clashes with the need to cut the stock of homes, not add to it.

Taxes

Republicans and conservatives have been screaming about the cost of bailing out Wall Street, costs made necessary by the failure to regulate banks and real estate brokerages under the Bush Administration. If you can get past the politics and the denial of responsibility, there is cause to worry about increased government spending. Given a $15,000 grant to every qualifying first-time buyer also means that other households will have to pay the tab.

The $15,000 credit has some bipartisan support at this moment, but you have to wonder how many additional homes would be sold. Some percentage of first-time buyers are going to purchase homes anyway, especially with the $8,000 credit which is now in place. In effect we would be giving those buyers an additional $7,000 for doing what they would have done anyway. As to whether we will also have a sufficient number of additional sales to justify the cost of the new program, that’s unknown — you can always find an economic study to support any view you prefer.

If the $15,000 proposal becomes a big deal in Washington, if there is a lot of debate and noise, then savvy buyers are just going to sit back and wait for such a proposal to pass. In the meantime, home sales will lag, inventory will build, and there will be great pressure to knock down home prices. If the bill does pass qualified buyers who wait will be rewarded while sellers will be hurt. If it does not pass, then huge numbers of sales will be lost for nothing.

Making The First-Time Buyer Tax Credit Better — Or Worse? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: $15000, $8000, buyer, credit, first, S1230, tax, time

Figures from the Treasury Inspector General for Tax Administration show that a lot of people are using the new tax credit to buy homes.

• As of March 6, 2009, 567,685 buyers claimed more than $3.9 billion under the First-Time Homebuyer Credit program.
• Of the 567,685 claims, 38,158 may be disqualified because the buyer had an ownership interest in a personal residence within the past three years, meaning they could not be identified as a “first-time” buyer under program rules.

Bush First-Time HomeBuyer Program

Under the Bush Administration first-time homebuyers were offered a $7,500 tax “credit” to encourage more buying. In fact, the $7,500 was not a true credit, it was actually an interest-free loan that had to be repaid to the government.

While $7,500 in any form could help some first-time buyers, the Bush plan actually created more debt, money that had to be repaid over a 15-year period whether or not the value of the property went up or down.

The Obama First-Time Homebuyer Credit

The Obama plan is substantially different from the Bush program.

First, the credit amount has been increased from $7,500 to $8,000.

Second, the Obama credit is an outright grant. First-time buyers do not have to repay the money.

• Under the Obama plan buyers get a credit equal to 10 percent of the purchase price but not more than $8,000.
• If your tax bill is less than the credit, then you pay no taxes and Uncle Sam sends you a check for the balance between what you owe and your credit.
• You don’t qualify if you’re a nonresident alien, you or your spouse have had an ownership interest in a home during the past three years or your adjusted gross income is $95,000 if single or $170,000 if married. (The credit phases out if your income is above $75,000 if single and $150,000 if married.)
• You can’t qualify for the credit if you buy from a close relative such as a parent, grandparent or child.
• If you sell or rent the property within three years then the credit must be repaid. No flippers allowed.

First-Time Buyers

The National Association of Realtors reports that in 2008 “forty-one percent of recent home buyers were first-time buyers.” This percentage is within the typical range seen each year, thus in 2005 when 7,076,000 existing homes were sold you could expect that roughly 2.9 million were purchased by first-time buyers.

First-time buyers are enormously important because they’re a big part of the marketplace. Without first-time buyers moving into the marketplace many existing homeowners could not sell their homes.

Today we have a situation where home sales by unit volume are very much lower than during the past few years, thus anything which encourages sales should be seen as helpful. That said, it will take some time to determine how many additional sales have been created by the federal program for first-time buyers or whether we are just rewarding real estate decisions which would have been made anyway.

500,000+ Grab First-Time Homebuyer Credit is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: $7500, $8000, Bush, buyer, credit, first, home, homebuyer, IRS, Obama, time

Last year the government announced that if you were a first time buyer and bought a home that you could get a $7,500 tax credit. However, this was one of those deals with more fine print than a credit card offer.

Under the 2008 program you got a credit equal to 10 percent of the purchase price of a prime residence up to $7,500 — but you had to pay it back either from profits when you sold or repaid at the rate of $500 a year beginning in 2010. In effect, it was an interest-free loan. Good, but not good enough to attract much interest from first-time buyers.

Now we have the 2009 version of the program. The dollar amount has been upped to a maximum tax credit of $8,000 and qualified borrowers do not have to repay the money.

In other words, an outright gift. Real money from Uncle Sam.

Let’s look at some specifics:

___ You have to buy a prime residence, not an investment property or second home. The property can be a single-family home, condo, townhouse or co-op.

___ Your credit is equal 10 percent of the purchase price of the property up to $8,000. The credit is used to reduce your federal tax bill. If the credit is bigger than the federal taxes you owe, you get a check from Uncle Sam for the difference.

___ Not everyone can play. The credit phases out above $75,000 for singles (and is gone at $95,000) and $150,000 for married buyers (and is gone at $170,000).

___ Generally, you’re a “first-time buyer” if you did not hold title to a principal residence for three years prior to buying in 2009.

___ You can buy using funds from a state-run first-time buyer program, money which is typically available with little down and at low rates. Buyers who used state funds were banned under the 2008 program. Be sure to ask brokers and lenders about these programs.

___ You have to own the property for at least three years. If you sell before three years the entire credit can be recaptured; that is, you have to pay it back. There are exceptions according to the IRS:

* If you sell the home to someone who is not related to you, the repayment in the year of sale is limited to the amount of gain on the sale. (See item 8 under Who Cannot Claim the Credit for the definition of a related person.) When figuring the gain, reduce the adjusted basis of the home by the amount of the credit.

* If the home is destroyed, condemned, or disposed of under threat of condemnation, and you acquire a new main home within 2 years of the event, you do not have to repay the credit.

* If, as part of a divorce settlement, the home is transferred to a spouse or former spouse, the spouse who receives the home is responsible for repaying the credit.

* If you die, repayment of the credit is not required. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the credit.

___ To claim your credit you have to file IRS Form 5405.

___ You have to buy after January 1st 2009 and before December 1, 2009. Caution: IRS Form 5405 says the date you acquired the home “is the date you purchased it (or the date you first occupied it if you constructed your main home).” Do they mean the day the sale agreement was signed and accepted, the date of settlement, the day you moved in or the date that the transfer of title was recorded in public records?

For specifics and updates, please get a copy of IRS Form 5405 and see a tax professional.

Uncle Sam’s $8,000 For First Time Home Buyers is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: $7500, $8000, buyer, credit, federal, first, goverment, homebuyer, tax, time home