Category — Real Estate

This is a really good article we found in USA Today about common questions regarding the homebuyer tax credit.  I hope you find it helpful.

“If you’re in the market for a home, the world is your oyster. Interest rates are at record lows. Housing prices in many parts of the country are still depressed. And you may be eligible for a generous tax break, even if the home you buy isn’t your first.

On Nov. 6, President Obama signed legislation that provides a $6,500 tax credit for some current homeowners who buy another home. The law also extends the $8,000 tax credit for first-time homebuyers, scheduled to expire Nov. 30, until next spring.

A lot of people are interested in taking advantage of this tax break, but the expanded credit also has whipped up a lot of confusion. Here are some answers to frequently asked questions:

Q: How do I qualify for the $6,500 credit?

A: This credit is available for homebuyers who sign a binding contract on a new or existing home by April 30, 2010, and settle by July 1 (deadlines that also apply to the first-time homebuyer credit). You must have lived in your existing home for five consecutive years out of the last eight. The home you purchase must be your primary residence. However, the law doesn’t require you to sell your old home, says Bob Meighan, vice president at TurboTax, the tax software provider. You can use it as a second home or a rental and still claim the credit, he says.

Q: I sold a home I had lived in for more than five years and bought a new one in August. Do I qualify for a tax credit?

A: No. For existing homeowners, the $6,500 credit is limited to homes purchased after Nov. 6.

Q: Does the home I buy have to be more expensive than the one I own now?

A: No. While the real estate industry is hopeful that homeowners will use this credit to buy a nicer place, there’s no prohibition against using it to downsize, Meighan says. That makes this credit particularly useful for seniors who are interested in moving into a smaller home.

If you are planning to move up, keep in mind that you can’t claim the credit if the purchase price of the home exceeds $800,000. Unlike some other tax credits, this one doesn’t slowly phase out once you exceed the threshold, Meighan says. If you buy a home for more than $800,000 – and that refers to the purchase price, not the assessed value or the amount of your mortgage – you are ineligible for the credit, period.

The $800,000 cap also applies to first-time homebuyers, but only those who purchase a home after Nov. 6. First-time homebuyers who bought a home for more than $800,000 between Jan. 1 and Nov. 6 can still claim the credit, assuming they meet the other criteria, Meighan says.

Q: I’m an existing homeowner, and would like to build a new home. Can I claim the credit?

A: Yes, but make sure your builder is good at meeting deadlines. You can claim the credit as long as you have a binding contract in place by April 30 and close by July 1. In the case of a new home, the closing date is the day you move in, Meighan says. If your home isn’t habitable by June 30, you won’t be able to claim the credit, he says.

Q: I bought a home in 2008 and claimed the old $7,500 first-time homebuyers credit, which must be repaid over 15 years. Did the new law change that rule?

A: No. That credit, which was available for homes purchased between April 9, 2008, and Dec. 31, 2008, must still be repaid.

The $8,000 first-time homebuyer credit, available for homes purchased after Dec. 31, 2008, doesn’t have to be repaid as long as you remain in the home for at least three years. Existing homeowners who qualify for the $6,500 credit don’t have to repay that money, either, as long as they meet the three-year requirement.

Q: We have a rental home and would like to sell it to our son, who has never owned a home. Would he qualify for the first-time homebuyer credit?

A: No. The legislation specifically prohibits taxpayers from claiming the credit if the sale is between “related parties,” Meighan says. A home sale to a parent, grandparent, child or grandchild would fall into that category.

Q: I sold my home this year and have been renting since. If I buy a new home, do I qualify for the expanded credit?

A: Yes, as long as you meet all of the other requirements, says Mel Schwarz, partner with Grant Thornton in Washington, D.C. The eight-year period used to determine eligibility ends on the day you buy your new home, he says.”

Thinking about taxes yet?  Here are some helpful suggestions from an article we found on USA Today.

For millions of Americans, “consultant” or “freelancer” is a euphemism for “unemployed.”

But whether you’re self-employed by choice or circumstances, there’s a lot you can do between now and year’s end to reduce your 2009 tax bill. One of the advantages of self-employment is that you have more control over your tax destiny than folks who have their taxes withheld from their paychecks. Some examples of tax-saving steps you can take before the end of the year:

Purchase needed materials. When you’re self-employed, everything you buy for your business, from manila envelopes to a new computer, is deductible. By making those purchases now, you can deduct the expense on your 2009 tax return instead of waiting until next year, says Mary Canning, dean of the school of taxation and accounting at Golden Gate University in San Francisco.

“If you’re thinking your laptop isn’t functioning very well or you need a new scanner, this might be the time to do that kind of purchase,” Canning says.

A purchase made with a credit card counts as a 2009 expense, even if you don’t pay the bill until 2010, Canning says.

Make sure you keep receipts and other records for these purchases, says Justin Ransome, partner in Grant Thornton’s National Tax Office. If you’re audited, the IRS will ask you to prove that these were legitimate business expenses, he says.

Delay income. If you’re employed, your company probably won’t agree to hold on to your last paycheck until Jan. 1 (although this sometimes works if you’re due a bonus or commission). But if you’re working for yourself, your clients may be happy to wait until next year to pay you for recent services.

Use health insurance tax breaks. Most workers who are covered by their employer’s health insurance can’t deduct their portion of the premium. Out-of-pocket expenses aren’t deductible unless they exceed 7.5 percent of adjusted gross income.

For the self-employed, though, 100 percent of health insurance premiums are deductible, says Mark Luscombe, tax analyst for tax publisher CCH. You can also deduct the cost of providing health insurance for your spouse and your dependents. However, the deduction can’t exceed the net income of your business.

If you purchased an individual insurance policy, you may be eligible to contribute to a health savings account. Contributions to a health savings account can be used to pay for deductibles and other costs that aren’t reimbursed by your insurance plan.

Unlike the flexible spending accounts offered by many employers, money remaining in HSAs at year’s end can be rolled over to future years. Self-employed workers can deduct contributions to an HSA, and withdrawals are tax-free as long as the money is used for qualified health care expenses, says Eddie Gershman, a partner with Deloitte Tax.

To qualify for an HSA, you must have a high-deductible insurance policy, which the government defines as one with a minimum deductible of $1,150 for an individual or $2,300 for a family.

The maximum you can contribute is $3,000 for an individual or $5,950 for family coverage.

Save for retirement. For the newly self-employed, saving for retirement may seem like an unaffordable luxury. But squirreling away even a small amount can reduce your 2009 tax bill.

There are several retirement-savings plans available to the self-employed, but the SEP-IRA is the easiest to set up, Gershman says. Contributions are deductible, and you can contribute up to 25 percent of your earned income, up to a maximum of $49,000 in 2009.

You have until the due date of your 2009 tax return to set up and fund a SEP-IRA, so you can wait until April 15, or even longer if you file for an extension. But the sooner you start saving, the sooner you’ll start earning money.

Start planning now. Finally, this is a good time to review your records and start planning for 2010, says Gale Northrop, a financial consultant for Schwab. If taxes aren’t withheld from your paychecks, you’re supposed to pay estimated taxes every quarter.

Tax tips for everybody else

While taxpayers who work for an employer have fewer options, there are year-end steps they can also take:

Give to charity. Donations are deductible as long as the charity or non-profit is qualified to receive deduction contributions (IRS Publication 78 includes a list of qualified organizations, but doesn’t include many religious groups that are also eligible.)

Timing is important if you want to claim the deduction on your 2009 tax return. Contributions made by check are considered delivered on the day they’re mailed, according to Grant Thornton. Contributions paid with a credit card are deductible in the year the charge occurs, even if you don’t pay the bill until next year. In general, pledges – no matter how heartfelt – aren’t deductible until you make the payment.

Buy a car. OK, you probably shouldn’t buy a car just to get a tax break. But if you’re in the market for a new vehicle anyway, buying one before year’s end could lower your taxes. You can deduct sales and excise taxes on new vehicle purchases of up to $49,500. You can claim this deduction even if you don’t itemize.

Harvest investment losses. Last year’s market meltdown and the economic downturn incinerated a lot of companies. If some of the securities in your portfolio are smoldering, you may be eager to ditch them and claim a loss for worthless securities. But if the stock continues to trade – even if it trades only infrequently in informal markets such as the Pink Sheets – it’s not considered worthless. In addition, the IRS requires you to claim the loss in the year the security becomes worthless, which is often difficult to figure out until well after the fact.

There are, however, other ways to claim a loss on securities that you believe are beyond redemption, says James Van Grevenhof, tax analyst for Thomson Reuters. One is to sell the security to an unrelated third party, which could include your broker, a cousin or a friend (you can’t sell it to a parent, child or sibling). You can claim the difference between the amount you paid and the proceeds from the sale as a loss on your tax return.

If no one is willing to buy your securities, you can abandon the stock, Van Grevenhof says. You must permanently relinquish all rights to the security, he says. You can accomplish this by contacting your broker or the company that issues the security.

Capital losses can be used to offset capital gains from the sale of securities.

If you had no capital gains this year, you can deduct up to $3,000 of your losses against ordinary income. Losses that exceed that amount can be carried over to future years.

President Barack Obama has approved the first-time homebuyer tax credit extension which will extend the tax credit until April 30, 2010.

The extension is part of a $24 billion economic stimulus bill that will extend the $8,000 tax credit for homebuyers who are purchasing their first home from the current November 30 deadline and expands the program to offer a credit of $6,500 to homeowners who have lived in their current home for at least five years and are seeking to relocate.

The following details apply to the homebuyer tax credit expansion:

Who is Eligible
-First-time homebuyers, who are defined by the law as buyers who have not owned a principal residence during the three-year period prior to the purchase, may be eligible for up to an $8,000 tax credit.
-Existing homeowners who have been residing in their principal residence for five consecutive years out of the last eight and are purchasing a home to be their principal residence (“repeat buyer”), may be eligible for up to a $6,500 tax credit.
-All U.S. citizens who file taxes are eligible to participate in the program.

Income Limits
Homebuyers who file as single or head-of-household taxpayers can claim the full credit ($8,000 for first-time buyers and $6,500 for repeat buyers) if their modified adjusted gross income (MAGI) is less than $125,000.
-For married couples filing a joint return, the combined income limit is $225,000.
-Single or head-of-household taxpayers who earn between $125,000 and $145,000, and married couples who earn between $225,000 and $245,000 are eligible to receive a partial credit.
-The credit is not available for single taxpayers whose MAGI is greater than $145,000 and married couples with a MAGI that exceeds $245,000.

Effective Dates
-The eligibility period for the tax credit is for homes purchased after Nov. 6, 2009, and before May 1, 2010. However, home purchases subject to a binding sales contract signed by April 30, 2010, will qualify for the tax credit provided closing occurs prior to July 1, 2010.

Types of Homes that Qualify
-All homes with a purchase price of less than $800,000 qualify, including newly-constructed or resale, and single-family detached, townhomes or condominiums, provided that the home will be used as their principal residence. Vacation home and rental property purchases do NOT qualify.

Tax Credit is Refundable
-A refundable credit means that if the amount of income taxes you owe is less than the credit amount you qualify for, the government will send you a check for the difference.

-For example:
-A first-time buyer who qualifies for the full $8,000 credit who owes $5,000 in federal income taxes would pay nothing to the IRS and receive a $3,000 payment from the government. If you are due to receive a $1,000 refund, you would receive $9,000 ($1,000 plus the $8,000 first-time homebuyer tax credit).
-A repeat buyer who owes $5,000 would pay nothing to the IRS and receive $1,500 back from the government. If you are due to get a $1,000 refund, you would get $7,500 ($1,000 plus the $6,500 repeat buyer tax credit).
-All qualified homebuyers can take the tax credit on their 2009 or 2010 income tax return.

Payback Provisions
The tax credit is a true credit. It does not have to be repaid unless the home owner sells or stops using the home as their principal residence within three years after the purchase.

The www.federalhousingtaxcredit.com site is being updated. Check the site next week for more detailed information on the new tax credit.

For more information, visit www.nahb.org.