Frequently Asked Questions - New Tax Credit Rules

Frequently Asked Questions
The Home Buyer Tax Credit Extension & Expansion authorizes a tax credit of up to $8,000 for qualified first-time home buyers or up to $6,500 for qualified current homeowners purchasing a principal residence between November 6, 2009 and April 30, 2010.The following questions and answers provide basic information about the tax credit. If you have more specific questions, we strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.

Who is eligible to claim the tax credit?
First-time home buyers who purchase a home between January 1, 2009 and April 30, 2010.Current home owners purchasing a home between November 6, 2009 and April 30, 2010, who have used the home being sold or vacated as a principal residence for five consecutive years within the last eight.
Contracts must be written and in-hand by April 30, 2010, however buyers have until June 30, 2010 to close on the property.


What is the definition of a first-time home buyer?
The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.


How is the amount of the tax credit determined?
The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000 for first-time buyers and $6,500 for repeat buyers.


Are there any income limits for claiming the tax credit?
The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $125,000 for single taxpayers and $225,000 for married taxpayers filing a joint return. The tax credit amount is reduced to zero for taxpayers with MAGI of more than $145,000 (single) or $245,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.


What types of homes will qualify for the tax credit?
Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.


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?
You do not have to close before December 1. Once the new legislation was signed, it was as if the November 30 date had never existed. Therefore, so long as the contract settles before April 30, the purchaser will be eligible for the credit.


Existing homeowner credit: Must the new house cost more than the old house?
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 $6,500 credit.


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 after November 6. Will I qualify for the $6,500 tax credit?
Yes. The new income limitations go into effect November 6, 2010. 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 you go to settlement after November 6, 2010, you should be eligible for the credit (or a portion of the credit if you're within the phase-out range).


I am a first-time homebuyer but was not within the prior income limits at the time I entered into my contract to purchse on October 30, 2009. I will be covered, however, by the new income limits. If I go to settlement after November 6, will I be eligible for a credit?
Yes. The existing homeowner credit goes into effect for purchases after November 6, 2010. 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.


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 receive any of the $6,500 tax credit?
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.


I owned my home for 10 years, but sold it two years ago and have been renting since. If I purchase a home, will I be eligible for the $6,500 tax credit if I meet all the other eligibility tests?
Yes. Because you lived in the home for more than 5 consecutive years of the previous 8, you will qualify for the $6,500 credit. For example, say John and his wife bought a home in 2000 and lived there until 2008 when they got divorced. 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 is "consecutive." As long as he lived in that house for 5 years straight, what he did since doesn't impact eligibility.


Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after November 6, 2009 and before July 1, 2010.In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.


I am not a U.S. citizen. Can I claim the tax credit?
Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of "nonresident alien" in IRS Publication 519.


I bought a home in 2008. Do I qualify for this credit?
No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit.



Source: National Association of REALTORS®

Life Design Homes, Lake Meadows, Smithville, MO

Sales have been so brisk in Lake Meadows, Life Design Homes will be starting 4 more homes priced from 149,900 this week. They plan to have at least two if not all 4 done before the new buyer tax credit ends. Call us at 816-985-PAUL.

Lake Meadows Entry - just off 169 Hwy, Smithville MO

Entry to Lake Meadows

Lake Meadows

New Homes from 140-180"s - There are 8 started and already 4 under contract -- please call us for further details on these popular homes. This neighborhood is only moments from Smithville Lake. 100% financing is available from USDA for those who meet the income guidelines. - If you are a first time homebuyer and meet the USDA income guidelines - just think - no money down plus the tax credit for those who qualify and close before November 30, 2009. Call Paul at 816-985-PAUL or Leigh at 816-985-SOLD today.

New Listings Needed

Yes, business is good. The Kansas City Northland / Smithville Lake area has been busy. Call us for a free market analysis of your home. We need more inventory in our area in the $120,000-$190,000 price range. First Time Home buyers are out buying - Please give us a call at 816-985-7285.

First-Time HomeBuyer Tax Credit

FIRST-TIME HOMEBUYER TAX CREDIT
As Modified in the American Recovery and Reinvestment Act
Major Modifications Shaded
February 2009 FEATURE
CREDIT AS CREATED JULY 2008
APPLIES TO ALL QUALIFIED PURCHASES ON OR AFTER APRIL 9, 2008
REVISED CREDIT –
EFFECTIVE FOR PURCHASES ON OR AFTER JANUARY 1, 2009 AND BEFORE DECEMBER 1, 2009
Amount of Credit
Lesser of 10 percent of cost of home or $7500
Maximum credit amount increased to $8000
Eligible Property
Any single family residence (including condos, co-ops, townhouses) that will be used as a principal residence.
No change
All principal residences eligible.
Refundable
Yes. Reduces (or can eliminate) income tax liability for the year of purchase. Any unused amount of tax credit refunded to purchaser.
No change
Purchasers will continue to receive refund for unused amount when tax return is filed.
Income Limit
Yes. Full amount of credit available for individuals with adjusted gross income of no more than $75,000 ($150,000 on a joint return). Phases out above those caps ($95,000 and $170,000).
No change
Same income limits continue to apply.
First-time Homebuyer Only
Yes. Purchaser (and purchaser’s spouse) may not have owned a principal residence in 3 years previous to purchase.
No change
Still available for first-time purchasers only. Three-year rule continues to apply.
Revenue Bond Financing
No credit allowed if home financed with state/local bond funding.
Purchasers who utilize revenue bond financing can use credit.
Repayment
Yes. Portion (6.67% of credit or $500) to be repaid each year for 15 years, starting with 2010 tax filing.
No repayment for purchases on or after January 1, 2009 and before December 1, 2009
Recapture
If home sold before 15-year repayment period ends, then outstanding balance of repayment amount recaptured on sale.
If home is sold within three years of purchase, entire amount of credit is recaptured on sale. Applies only to homes purchased in 2009.
Termination
July 1, 2009
(But note program changes for 2009)
December 1, 2009
Effective Date
Purchases on or after April 9, 2008 and before January 1, 2009. Repayment to begin for 2010 tax year.
All revisions are effective as of January 1, 2009

Obama Promises More Low-Cost Mortgages

President Barack Obama promised Saturday to reduce mortgage costs as a key part of his plan to improve the economy.



Analysts applauded the move, saying that making low-cost mortgages widely available could stabilize housing markets and jumpstart new home construction.



Beyond that, observers say aid for the troubled housing market will help blunt the anger many Americans feel over the financial bailout as the executives of firms that received billions take bonuses while average people lose their homes



Source: Reuters News, Mark Falsenth

New MHDC Program

January 30, 2009
You may have already heard about this program but, if you haven't, MHDC (Missouri Housing Development Commission) has announced a new program to work in conjunction with the Federal First Time Homebuyer Tax Credit program. --Quote from MHDC web site, --With over 30 years experience funding mortgages for first time homebuyers, MHDC knows that the biggest barrier faced by first time homebuyers is acquiring money for down payment and closing costs. As a result MHDC created a program that allows homebuyers to receive the value of the tax credit at the time of closing.
How the Federal First Time Homebuyer Tax Credit Works: First time homebuyers receive a tax credit worth 10% of their home purchase, up to $7500. The credit is claimed on the homebuyer's federal tax returns. The credit is refundable, which means that the homebuyer receives a refund for the amount of the credit minus any federal tax liability. The credit is essentially an interest-free loan from the federal government and must be repaid through an increase in federal income taxes over a period of 15 years.
How the MHDC Tax Credit Advance Loan Program Works: MHDC makes a second mortgage to the homebuyer at the time of closing worth up to 6% of the home purchase price or a maximum of $6750, which is used to cover down payment and closing costs. The tax credit advance loan is paired with the MHDC financing for the first mortgage in the form of a safe 30 year, fixed rate mortgage. The homebuyer then files for the federal tax credit and uses the credit refund to pay off the MHDC tax credit advance loan. If the tax credit advance loan is paid off by the designated deadline (no later than June, 2010), the homeowner pays no interest other than a modest servicing fee. If the tax credit advance loan is not paid in full by the deadline, principal and interest payments to repay the loan over 10 years begin automatically. MHDC loan programs are available for households with incomes up to $85,000. The federal tax credit and the MHDC tax credit advance loan program are both currently set to expire June 30, 2009.

The URL for MHDC web site containing this information above is http://www.mhdc.com