Shirley's San Antonio Real Estate Blog

New homebuyer tax credit

 

A new tax credit for homebuyers has been enacted and there are some changes. Income limits have been increased and it is no longer restricted to First Time Homebuyers.

I have included a chart below from the National Association of Realtors. This is the best illustration I have seen so far and will help answer many questions. I have heard positive feedback from those that have called the IRS from the phone numbers found on their website, irs.gov. Hold times are short and you can easily get to a human being!!

The effective date of this new credit is November 6, 2009 as that is the day this was signed into law!!

I hope this is helpful for those with questions.

 

As you can see, the income limits were increased to include more participants in the program as well as the inclusion of buyers who have previously owned a home.

 

Tom Burris
DallasLoanGuy.com
Dallas, TX

http://www.dallasloanguy.com/

I write about Texas Home Loans , live in the Dallas, TX area and lend across the entire Great State of Texas!!

 

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Everything was perfect.  I had a first time buyer that was pre-approved and motivated to find their dream home.  We spent countless hours together.  He relied on my expertise and market knowledge, and I happily showed him house after house.  We met for consultations. 

Then we wrote two offers together.  One finally got accepted, but the whole house inspection turned up sour, so we began the process over again.  I thought everything was going great.  Until the phone call...

John: "Hi, Kristina?  This is John Doe.  Did I sign anything with you saying I had to buy a house through you?"

Me : <stunned silence> "Umm, well not specifically.  Why?"

John: "Well, I knew you had family obligations today so I was driving around on my own.  I drove past one of the houses you e-mailed me, and I really really liked it.  So, I called the agent on the sign.  She came out right away and showed it to me.  And you know, what?  She told me I could actually get a better deal if I bought directly from her.  We went straight to her office and wrote an offer and guess what?  It got accepted by the sellers!  Isn't that awesome?  I just wanted to tell you thanks for all your hard work.  I'll send you a Christmas present."

<click>

I felt like the wife that just found out her husband cheated on her.   Did the buyer know any better?  Probably not.  He wasn't trying to keep me from getting a paycheck.  He simply didn't know - because I didn't tell him any different.  He thought I would be sincerely excited that he got the house he wanted.  Did the agent know better?  Probably, or he wouldn't have asked me if he had signed anything.

This was back in 2005, when I first got my license.  Since then, I've found that I have to be the one to educate my buyers.  Although I've still had a few buyers get cold feet, their financing falls apart, or they just flat out change their minds - I rarely have a buyer call the agent on the sign. 

So how do you keep your buyer from straying?  It's simple - just educate them about the process.  If you don't focus on building a relationship with your buyer and explaining to them that they have responsibilties in the process too, who will?  The answer is either no one or another agent.  Remember, most buyers (especially first time buyers) don't know the inner workings of real estate.  These are the five key points I tell all of my buyers.

1.  Don't call the agent on the sign.  I will do everything in my power to be available during the times that you need appointments, but I'll need some notice.  If I can't show you homes at that time, my partner can.

2.  I'm your advocate.  I'm looking out for your best interests, and I want to get you the best deal.  I'm on your side in this process and we are a team.

3.  I don't get paid a salary, or per house I show.  I only get paid when you buy a house.

4.  I'm making a commitment to you to share my time, expertise and market knowledge.  I need you to make a commitment to me that I am your agent. (After a few showings or when it's time to write the first offer, this is when I bring out the buyer's agency agreement.)

5.  If we work together, we can have a successful outcome.

The key point is this - Never forget that although we do this every day, not everyone does.  It may seem simple to us, but to others it's not.  Help your buyers understand how the process works - it's not just for your benefit, but for theirs. 

About the Author:  Kristina Pratt is a REALTOR® with Goshen Realty Group at RE/MAX Preferred Partners in Edwardsville, Illinois. She and Nancy Milton help their customers buy and sell homes and investment properties in St. Louis' Illinois suburbs of Madison and St. Clair counties with special emphasis on the communities of Edwardsville, Glen Carbon, Maryville, Collinsville and Troy. For more information, visit their web site at http://www.GoshenRealtyGroup.com or e-mail Kristina@GoshenRealtyGroup.com

 

As promised below is an overview and comparison between the present Tax Credit and the New.  The information below was just given to us by Senator Dodd's Office.

Homebuyer Tax Credit Overview:

• First‐time homebuyers (those who have not owned a principal residence in the three years prior to the purchase date of their subsequent home) are eligible for a refundable tax credit of 10 percent of the purchase price of a principal residence up to $8,000 for homes bought between January 1 and December 1, 2009.
• If the home is sold within three years, the taxpayer must pay back the credit (called "recapture").
• Income limits for the current credit are $75,000 for single filers and $150,000 for joint filers, phasing out completely after $95,000 for individuals and $170,000 for couples. Income limits are based on Modified Adjusted Gross Income (MAGI).

Extended and Expanded Homebuyer Tax Credit:

• Extends the availability of the $8,000 first‐time homebuyer credit to taxpayers who have a principal residence under a binding contract before April 30, 2010, allowing 60 days to close.
• Creates a new $6,500 credit for move‐up buyers. Move up buyers are defined as people who haveLike the credit for first‐time buyers, lived in their current home for 5 or more consecutive years during the 8 year period ending on the date of purchase of the their subsequent principal residence. this credit is available to taxpayers who have principal residences under a binding contract before April 30, 2010, allowing 60 days to close. 
• Raises the income limits for both the first time and move‐up buyer to $125,000 for single filers, $225,000 for joint filers with a $20,000 phase‐out. The $20,000 phaseout means that no credit can be claimed by those with MAGI above $145,000 for single filers, $245,000 married joint filers.
• Both the first‐time and move‐up credit are available for principal residences with a purchase price up to $800,000. Purchase price is defined as the adjusted basis of the principle residence on the date such residence is purchased.
• Includes strong anti‐fraud provisions: 
  • Gives the Internal Revenue Service math error authority which they have requested when processing IRS form 5405. This would allow the IRS to correct certain errors during credit processing, and avoid the need for a post‐refund, labor intensive audit. 
  • Requires a copy of the settlement statement (HUD‐1) which would verify the date of purchase, the residence address, and the purchase price. 
  • Introduces an explicit age limitation, allowing no one under 18 to claim the credit
  • Excludes individuals who are claimed as dependents and married individuals who purchase the home from the family of their spouse from claiming the credit
• Eliminates the recapture requirement for military personnel and members of the Foreign Service and intelligence community who are forced to sell their homes within three years as a result of an official extended duty of service. In addition, these individuals have one additional year to qualify for the credit if they served for at least 90 days outside the U.S. in 2009 or 2010. 
• Purchases made in 2010 can be claimed on the 2009 tax return. 
• The score of $10.8 billion over 10 years is paid for by a seven year delay of the worldwide allocation of interest rule until 2017, not stimulus funds. 
• Effective after the date of enactment. 
• Homebuyers who were eligible for the first‐time homebuyer tax credit pre‐WHBAA will be able to continue to claim the credit. Homebuyers who qualify for the credit under the expanded terms will only be able to claim the credit if they close on their home purchase after the date of enactment of this bill (the binding contract can be signed before enactment).

Some of this, like any new Legislation, is going to take a few days to fully understand.  As further clarification is made available I will try to provide it.

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Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

The National Association of Realtors (also known in the industry as NAR) has a great Frequent Asked Questions communique for the consumer.  Things are so different from the current version of the bill that consumers need to be aware of what this bill encompasses. 

YOUR CONTRACT NEEDS TO BE SIGNED BY APRIL 30th and Closing by June 30th.   

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 firsttime 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 phaseout 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 firsttime 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.

Larry Bettag - Regional Vice President, Midwest Region

Illinois FHA Specialist

630-417-7172

  

               

An Illinois Residential Mortgage Licensee