The Internal Revenue Service has released the new form that eligible home buyers need to claim the first time home buyer credit this tax season. Processing of those tax returns will begin in mid February. The IRS also announced new documentation requirements to deter fraud related to the first time home buyer credit. The new form and instructions follow major changes in November to the home buyer credit by the Worker, Homeownership, and Business Assistance Act of 2009. The new law extended the credit to a broader range of home purchasers and added new documentation requirements to deter fraud and ensure taxpayers properly claim the credit.
With the release of Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, and the related instructions, eligible home buyers can now start to file their 2009 tax returns. Taxpayers claiming the home buyer credit must file a paper tax return because of the added documentation requirements.
The IRS expects to start processing 2009 tax returns claiming the home buyer credit in mid February after it completes the updating and testing of systems to meet the law's new requirements. The updates allow the IRS to put in place critical systemic checks to deter fraud related to the home buyer credit. Some early taxpayers claiming the home buyer credit may see tax refunds take an additional two to three weeks.
In addition to filling out a Form 5405, all eligible home buyers must include with their 2009 tax returns one of the following documents in order to receive the credit:
In addition, the new law allows a longtime resident of the same main home to claim the home buyer credit if the resident purchases a new principal residence. To qualify, eligible taxpayers must show they lived in their old homes for a five consecutive year period during the eight-year period ending on the purchase date of the new home.
The IRS has stepped up compliance checks involving the home buyer credit, and encouraged home buyers claiming this part of the credit to avoid refund delays by attaching documentation covering the five consecutive year period:
The IRS also reminds home buyers that the new documentation requirements mean taxpayers claiming the credit cannot file electronically and must file paper returns. Taxpayers can still use IRS Free File to prepare their returns, but the returns must be printed out and sent to the IRS, along with all required documentation.
Normally, it takes about four to eight weeks to get a refund claimed on a complete and accurate paper return where all required documents are attached. For those home buyers filing early, the IRS expects the first refunds based on the homebuyer credit will be issued toward the end of March.
More details on claiming the credit can be found in the instructions to Form 5405, as well as on the First Time Home Buyer page on IRS.gov.
A 1031 exchange, also known as a tax deferred exchange, is a method for selling one property that's qualified, and then proceeding with an acquisition of another qualified property within a specific time frame. A 1031 exchange is unique because the entire transaction is treated as an exchange and not just as a simple sale. It is this difference between "exchanging" and not simply buying and selling which, in the end, allows a taxpayer to qualify for a deferred gain treatment. Sales are taxable with the IRS and 1031 exchanges are not.
Sellers need to be more aware of the tax implications these days, especially when selling a property that has dropped in value. If the decrease in a property’s value is significant enough, it can have a substantial negative impact on a homeowner’s equity, the equity may be completely wiped out or the homeowner could owe more on the investment property than it is currently worth and would therefore be looking at a short sale to dispose of the property in order to avoid foreclosure. Homeowners in this situation must consult their attorney or tax advisor before they do anything because there could be serious tax ramifications through a previous 1031 exchange. This could be the same case for homeowners who have refinanced and pulled cash out of the property and their debt exceeds their tax basis as well as the fair market value of the property.You may have a capital gain on a property even if you have had a loss, even in a short sale, even when refinancing. You really need to contact your tax advisor before you do anything.
The California Association of Realtors© (C.A.R.) today announced it is extending its Mortgage Protection Program (MPP) for first-time home buyers through Dec. 31, 2010. To date, C.A.R. has approved benefits for 3,122 first-time home buyers at no cost to the consumer.
Offered by C.A.R.'s Housing Affordability Fund (C.A.R.H.A.F.), MPP provides up to $1,500 per month, for up to six months, to eligible first-time home buyers who lose their jobs due to layoffs. The funds are intended to help consumers meet their mortgage payment obligations. Qualified co-buyers also can participate in the program, and receive monthly benefits of $750 per month for up to six months.
"The home-buying process can be one of the most stressful periods in a person's life," said C.A.R. President Steve Goddard. "It also is one of the largest financial transactions most people make in their lifetime. Our goal with the C.A.R.H.A.F. Mortgage Protection Program is to help alleviate some of the anxiety home buyers feel when purchasing a home by providing a layer of security."
The Federal Open Market Committee today announced it will maintain its target range of zero to 0.25 percent for the federal funds rate, and anticipates that "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."
As previously announced, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage backed securities and nearly $175 billion of agency debt to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets.
For more information, please see here:
The UCLA Anderson School of Management predicts California's unemployment will top out this December at 12.7%. The forecast for the future remains relatively bleak: unemployment will not dip below 10% until 2012. Beacon Economics expects this to come in the second quarter of 2012.
Forecasters look for future job growth in the healthcare, education, tech and renewable energy fields to pick up the slack of the negative growth, especially the struggling real estate, government and manufacturing industries.
The IRS will be releasing a new version of Form 5405, the First-Time Homebuyer Credit Form, for homebuyers looking to claim the extended housing tax credit. Homebuyers eligible for the tax credit must use this new version if either of the following apply:
The new form is due to be published later this December. The old form (currently the only one available on the IRS website) will not be accepted for claiming the tax credit under the extended rules. Owners claiming this tax credit 0n their 2009 tax returns must file on paper.
For most of the past two years, Fannie Mae and Freddie Mac have offered loans on properties valued as high as $729,500 in high priced areas. That amount was scheduled to be reduced by around $100,000 at the end of this year, but recent legislation will cause the higher limit to remain in effect through the end of 2010. This is good news for future homebuyers looking to purchase properties in high cost areas such as Silicon Valley.
Loans that conform to Fannie and Freddie's standards entail lower risk of loss for lenders, and lower interest rates for borrowers, thanks to the government guarantee of all of these loans. Many borrowers who would have otherwise have to take high price jumbo loans will continue to be eligible for cheaper financing instead.
Thanks to the combined influence of the depressed housing market and the government's recently extended $8,000 tax credit for first time homebuyers, the percentage of buyers purchasing their first home has risen dramatically over the past two years. In 2006, 36% of buyers had not owned a home in the previous three years. In 2009, the number so far is 47%. About 20% of these purchasers, approximately 350,000 buyers nationwide, are eligible for the homebuyer's tax credit.
Last week President Obama signed a bill into law intended to stimulate the U.S. housing market and address the economic challenges facing our nation. The new law:
Here is more information about how the extended home buyer tax credit can help prospective home buyers become part of the American dream. If you have specific questions or need additional information, please contact a tax professional or the Internal Revenue Service at (800) 829-1040.
Who qualifies for the extended credit?
To qualify as a "first time homebuyer" the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase. If you purchased a home between January 1, 2009 and November 6, 2009, please see:
Which properties are eligible?
The Extended Home Buyer Tax Credit may be applied to primary residences, including: single family homes, condos, townhomes, and co-ops.
How much is available?
How is a buyer's credit amount determined?
Each home buyer's tax credit is determined by two additional factors:
These income limits have changed from the 2009 First-Time Home Buyer Tax Credit limits. If you purchased a home between January 1, 2009 and November 6, 2009, please see
If the buyer(s)' income exceeds these limits, can he/she still get a credit?
Yes, some buyers may still be eligible for the credit. The credit decreases for buyers who earn between $125,000 and $145,000 for single buyers and between $225,000 and $245,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income, over $145,000 for singles and over $245,000 for couples, are not eligible for the credit.
Can a buyer still qualify if he/she closes after April 30, 2010?
Under the Extended Home Buyer Tax Credit, as long as a written, binding contract to purchase is in effect on April 30, 2010, the purchaser will have until July 1, 2010 to close.
Will the tax credit need to be repaid?
No. The buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during this three-year period, the full amount credit will be recouped on the sale.
Governor Schwarzenegger recently signed several hundred bills into law, including many that will impact the real estate industry. SB 94 is an urgency measure that takes effect immediately.
SB 94 prohibits advance fees for loan modifications and clarifies the real estate broker exemption from the mortgage foreclosure consultant act. This new law, that expires January 1, 2013, prohibits any person, including licensed real estate brokers and attorneys who negotiate, attempt to negotiate, arrange, attempt to arrange, or otherwise offer to perform a mortgage loan modification or other form of mortgage loan forbearance for a fee or other compensation paid by the borrower related to mortgages and deeds of trust secured by residential real property containing one to four dwelling units to do any of the following:
The new language in California Business & Professions Code Section 10026 that defines "Advance Fee" has been modified to clarify that services may not be divided into phases to avoid the new law: "Neither an advance fee nor the services to be performed shall be separated or divided into components for the purpose of avoiding the application of this section."
Loan modification agreements entered into and advance fees already collected on or before October 11, 2009 are not affected. Any advance fees collected after October 11, 2009 must be fully refunded to the clients. Even if the DRE issued a "no objection" letter, licensees may no longer collect advance fees despite an executed loan modification agreement.
Here's a program you may not have heard about, and honestly I hope that none of my clients will ever need to take advantage of it. Still, it can offer some peace of mind in today's uncertain job market.
Through the California Association of Realtors© (C.A.R.) Housing Affordability Fund Mortgage Protection Program, first time homebuyers who lose their jobs due to layoffs may be eligible to receive up to $1,500/month, for up to six months, to help make their mortgage payments. Qualified co-buyers could also receive $750 monthly for up to six months. C.A.R.'s Housing Affordability Fund has dedicated $1,000,000 towards this Mortgage Protection Program and estimates that up to 3,000 families will benefit from the program this year.
To qualify for this Mortgage Protection Program, you must:
If you're a first time homebuyer looking to benefit from Uncle Sam's tax credit, time may be running out. More than 1.4 million buyers have already qualified for the credit, but there is less than 60 days left until the program is scheduled to expire.
The National Association of Realtors and others are pushing to get some sort of extension, but as of now the program is set to expire on November 30th. If you're seriously considering purchasing a home in the near future you should keep this in mind. Qualified first time homebuyers (those who haven't owned a home in the past three years) are eligible for up to a $8,000 tax credit (10% of the purchase price up to $8,000) You must close on a home before November 30th, not just be in contract to purchase.
There's still time to take advantage of this program, but you probably should be in contract within the next few weeks in order to be able to close escrow by November 30th.
Additional information about this program can be found at the IRS's web site here:
U.S. Housing and Urban Development Secretary Shaun Donovan announced last Friday that the Federal Housing Administration (FHA) will allow homebuyers to apply the Obama Administration's new $8,000 first time homebuyer tax credit toward the purchase costs of an FHA-insured home. Donovan said the action will help stabilize the nation's housing market by stimulating home sales across the country.
The American Recovery and Reinvestment Act of 2009 offers homebuyers a tax credit of up to $8,000 for purchasing their first home. Families can only access this credit after filing their tax returns with the IRS. The announcement detailed FHA's rules allowing state Housing Finance Agencies and certain non-profits to "monetize" up to the full amount of the tax credit (depending on the amount of the mortgage) so that borrowers can immediately apply the funds toward their down payments. Homebuyers using FHA approved lenders can apply the tax credit to their down payment in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate. To read the FHA's new mortgagee letter, visit HUD's web site here:
Currently, borrowers applying for an FHA insured mortgage are required to make a minimum 3.5 percent down payment on the purchase of their home. Current law does not permit approved lenders to monetize the tax credit to meet the required 3.5 percent minimum down payment. Lenders can now monetize the tax credit for use as additional down payment, or for other closing costs, which can help achieve a lower interest rate. Buyers financing through state Housing Finance Agencies and certain non profits will be able to use the tax credit for their down payments via secondary financing provided by the HFA or non-profit.
In addition to the borrower's own cash investment, FHA allows parents, employers and other governmental entities to contribute towards the down payment. This action permits the first time homebuyer's anticipated tax credit under the Recovery Act to be applied toward the family's home purchase right away. Unlike seller funded down payment assistance, which was a vehicle for abuse, this program will allow homebuyers to shop for the best home price and services using their anticipated tax credit.
The Administration's homebuyer tax credit is estimated to stimulate 160,000 home sales across the nation, 101,000 of which will be first-time buyers who will receive the credit. Another 59,000 existing homeowners will be able to buy another home because a first-time buyer purchased their home.
Homebuyers should beware of mortgage scams and carefully compare benefits and costs when seeking out tax credit monetization services. Programs will vary from organization to organization and borrowers should consider whether the services make sense for them, as well as what company offers the most suitable and affordable option.
For every FHA borrower who is assisted through the tax credit program, FHA will collect the name and employer identification number of the organization providing the service as well as associated fees and charges. FHA will use this information to track the business closely and will refer any questionable practices to the appropriate regulatory agencies, as necessary.
Copyright 2009 - 2018 by Michael Lagae. All rights reserved
Michael Lagae, CalBRE #01790860
Coldwell Banker Residential Brokerage, CalBRE #01908304