Buyers’ Tax Credit Now For All Buyers

Announced in November, 2009, new tax credits not only offer first-time  buyers incentives to purchase a new home [up to $8,000], but  all buyers, even those who already own homes.  If you’re seeking to change your house and take advantage of low home prices and interest rates, now’s the time!

Who’s Eligible?

If you’ve owned your principal residence for 5 consecutive years  of the last 8, you’re in. If you’re planning to live in your new home as your principal residence, you’re in.  If you’re single, you can earn up to $125,000 adjusted gross income and still receive the full credit of $6500. For married folks, that’s $225,000 adjusted gross income. Singles earning $125,000 to $145,000 and marrieds $225,000 to $245,000 can still get incrementals of the tax credit.

What’s the Deal?

Your new home cannot cost more than $800,000. Beyond that, I guess the feds’ feeling is you can handle the costs yourself.  And the credit is actually 10% of the purchase price up to a limit of $6500. Your purchase contract must be dated between November 7, 2009 and April 30, 2010. And, you must close on your deal no later than June 30th.

Notice:  Your new home’s price has no relation to your previous home’s value. This tax credit is for move-up buyers, downsizing buyers and relocating buyers. The legislation has no provision regarding the price of the new home.

In case you were wondering, you are not required to sell your previous home.  A detail announced by the IRS, however, states you are not eligible  if you convert your previous home into a rental.  It does seem, though,  you could short sale your previous home and still purchase a new home with the federal tax credit using the special loan mentioned in a previous post. Another detail is that you must live in your new home for which you received the tax credit for 36 months or you might have to repay it.

What’s the Catch?

Really, there’s no catch.  The federal government is trying to send some “stimulus” to the average taxpayer and to the moribund housing industry. As we know, the buyers’ tax credit was extended and this one for move-up buyers added, so there’s little likelihood that this will be extended again…

The main catch to this program is the same for any government program. It requires proper paperwork. Especially this time around, after many proven cases of out-and-out fraud in the buyers’ program, the IRS is determined to make sure all claims are valid.

 So, here’s what you need: a copy of  the HUD-1 settlement sheet from your new property. This gives the sales price and date of closing. You will need some evidence of the 5 consecutive years at the previous property–property tax, homeowners’ insurance or the like. And revised Form 5405 available at www.irs.gov.

That’s it. You’re in business. Now go get that property.

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Does It Pay to Remodel? If It’s Energy-Efficient, Yes

The Energy Star logo is placed on energy-effic...
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Back in the time of the “bubble” when it was easy to get money from your equity line of credit, home construction projects made sense.  The home’s value was appreciating by the minute. Adding a few upgrades,  new kitchen cabinets here, some granite counters there, all seemed perfectly reasonable because the money spent would defintely come back to you in the form of greater value.

That was then. This is now.  Does it still make sense to remodel?  In the present real estate market, the answer is all about improving energy efficiency.  If you’re looking to become more energy-efficient, and who isn’t these days, it’s a great time. Because tucked into some of that much-ballyhooed legislation to help home buyers, are some important tax credits to help home owners make their homes more energy-efficient.

If you are serious about making your home more energy-efficient, you can now get tax credits worth up to 30% of the value of  the item, and a $1500 lifetime credit. The tax credit is retroactive to January 1, 2009 for improvements made through the end of 2010 and for some through 2016. Notice this is not a tax deduction, but a tax credit so it eliminates any tax you owe dollar for dollar.

And, what might be these energy-efficient items? Some energy-efficient improvements are eligible for installation and materials cost credits, such as for HVAC [air-conditioning] systems, solar water heaters, solar panels, geothermal heat pumps, wind-energy systems and fuel cells.   Some components are covered only for the cost of the material. This group includes sliding patio and French doors, meeting certain criteria, though windows do not.

Some appliances are also eligible for the credit. Especially if your appliances are more than 15 years old, 10 in some cases, it really pays to change them for new Energy-Star ones. It’s estimated that a household spending about $2000 per year on energy would save about $700 per year in costs. That’s not counting the tax break. Not all appliances are eligible, but the most energy-efficient usually are. Check out this website for all eligible products.

If you purchase any of these items, you will need IRS Form 5695 available at the IRS website.

Notice also that Southern California Gas is offering rebate for purchases of tankless water heaters of up to $200 depending on the model as well as furnaces and a number of other items.  The DWP [Department of Water and Power] is offering terrific deals on electric lawn mowers for those willing to trade their old gas-guzzlers. And, it will also give rebates for new clothes washers.

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Buyer Stimulus

Early reports about the massive Stimulus Bill due to be passed today indicate that home buyers will get a bit of a boost.

FIRST-TIME HOME BUYER CREDIT First-time home buyers are eligible for a refundable tax credit equal to 10 percent of the purchase price of their home, up to $8,000, if they made the purchase after Jan. 1, 2009, but before Dec. 1, 2009.  A first-time home buyer is traditionally defined as someone who has not owned a home in the past 3 years, no matter how many homes owned before that date.

first-time-home-buyer

Unlike a similar credit that Congress provided last year, buyers  don’t have to pay this one back over 15 years. The new credit, however, does phase out for individuals with incomes over $75,000. Also, you forfeit the credit if you sell the house within three years.  In other words, no home flippers, please.   Of course, this credit is for owner-occupied homes only.

Coupled with the now-permanent rise in the cap rate of FHA loans to $625,000, this does propel buyers into the market.  FHA loans offer a variety of options for the home buyer, and,  prime among them is that 3.9% down payment.  Some of the savor there is reduced by the high mortgage insurance amounts necessary for these federally-backed loans, but  FHA allows  sellers  to  contribute up to 6% of the loan amount for these and other costs.

Today, mortgage rates for 30-year fixed, are hovering around 5%, among the lowest in 50 years, and home prices are still declining, albeit more slowly.

If all this doesn’t point qualified buyers in the right direction–what will? Today’s buyer, especially in Southern California, is  unlikely to get a better deal in his or her lifetime.

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