Governor Signs Home Tax Credit Bill

Governor Schwarzenegger has signed AB 183, the Home Buyers Tax Credit legislation, into law. The legislation will provide $200 million in tax credits, allocated as follows: $100 million for qualified first-time home buyers who purchase existing homes; and $100 million for purchasers of new, or previously unoccupied, homes.

Eligible taxpayers who close escrow on qualified principal residences between May 1, 2010 and December, 31, 2010, or who close escrow on a qualified principal residence on and after December 31, 2010 and before August 1, 2011, pursuant to an enforceable contract executed on or before December 31, 2010, will be able to take the allowed tax credit.

This credit is equal to the lesser of 5 percent of the purchase price or $10,000, taken in equal installments over three consecutive years. Under the bill, purchasers will be required to live in the home as their principal residence for at least two years or forfeit the credit (i.e. repay it to the state). Buyers also must be at least 18 years old and be unrelated to the seller. First-time buyers are defined as those who have not owned a home in the past three years.

How to Get the Extended Home Buyer Tax Credit

You’ve decided to purchase a home and take advantage of the Extended Home Buyer Tax Credit. Here's what you have to do to get your benefit:

1. Close on your home purchase between November 7, 2009 and April 30, 2010, or have a binding written contract in place by April 30, 2010 with a closing date no later than June 30, 2010.
   
2. Decide whether to:
   • apply the credit to your 2009 tax return, filed on or before April 15, 2010;
   • file an amended 2009 return; or,
   • apply the credit on your 2010 return, filed on or before April 15, 2011.
     
3. Attach documentation of purchase to your return.

Documentation of Purchase

Details concerning the precise documents required to confirm your purchase have not yet been released. When this information becomes available, we will include instructions and links to the appropriate forms.

When to Apply the Credit

Buyers purchasing homes on or before December 31, 2009 may claim the credit on their 2009 tax returns.

Buyers purchasing in 2010 will have the option to:

• Claim the credit on their 2009 return, even if the purchase is completed after December 31, 2009;
• File an amended return for 2009 if their purchase is completed after April 15, 2010; or,
• Claim the credit on their 2010 tax returns.

If you, or your client, purchased a home between January 1, 2009 and November 6, 2009, please see: How to Get the 2009 First-Time Home Buyer Tax Credit.

Applying the Credit to Your 2009 Taxes

You will need to do three things to claim the credit on your 2009 tax return:

1. Fill out Form 5405 to determine the amount of your available credit;
2. Apply the credit when you file your 2009 tax return or file an amended return;
3. Attach documentation of purchase to your return or amended return.

Tax Credit To Expire Soon: Another Reason To Act Now

The present tax credit for move-up and first time buyers also expires this spring. Sales contracts must be signed by April 30. With low rates and lower home prices, this is the time to act. Even the Federal Reserve Board has stated that rates are likely to rise this spring as they begin to unwind their support of the mortgage markets. The following information on the tax credit was posted on the National Association of Home Builders Website.

FHA Announces Major Tightening of Loan Programs Coming Soon Act Now To Beat The Deadline!

Just a few weeks ago, the Federal Housing Administration announced that major changes to its loan programs are on their way. The FHA is very popular right now with close to one-half of Americans using this government program to finance the purchase of homes. These changes will make it harder for the average American to purchase going forward. Here is a summary of the changes:

• The cost of FHA mortgage insurance is going up significantly. The first increase will be for the "up-front" premium and this will be implemented with applications taken after April 5, 2010;
• Those with lower credit scores will be required to put 10% of the sales price down. Presently the requirement is for only a 3.5% down payment and the lower down payment requirement will continue for those with good credit histories. This requirement is to be implemented in early summer.
• Also to be implemented early summer, sellers will be restricted in the amount of closing costs they can pay. Typically FHA has been one of the most liberal programs in this regard as buyers could decrease the cash required through seller closing-cost assistance. Soon sellers will be able to offer assistance up to 3% of the purchase price, instead of the present 6%.

While we understand that the economy is causing many of these changes and they are important to make sure this important program remains sound, we also are concerned that everyone who wants to purchase can do so with as little barriers as possible. This means that if you are interested in purchasing a home, now is the time to act so that you can do so under the present guidelines.

The $6,500 Move-Up / Repeat Home Buyer Tax Credit at a Glance

• To be eligible to claim the tax credit, buyers must have owned and lived in their previous home for five consecutive years out of the last eight years.
• The tax credit does not have to be repaid.
• The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500.
• The tax credit applies only to homes priced at $800,000 or less.
• The credit is available for homes purchased after November 6, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, the home purchase qualifies provided it is completed by June 30, 2010.
• Single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.

For more detailed information on the move-up buyer tax credit: http://www.federalhousingtaxcredit.com/faq2.php

$8,000 First-time Home Buyer Tax Credit at a Glance

• The $8,000 tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
• The tax credit does not have to be repaid.
• The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
• The tax credit applies only to homes priced at $800,000 or less.
• The tax credit now applies to sales occurring on or after January 1, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify.
• For homes purchased on or after January 1, 2009 and on or before November 6, 2009, the income limits are $75,000 for single taxpayers and $150,000 for married couples filing jointly.
• For homes purchased after November 6, 2009 and on or before April 30, 2010, single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.

For more detailed information on the first-time homebuyer tax credit:http://www.federalhousingtaxcredit.com/faq1.php

How to Get First Time Home Buyer Credit

This article is from the Realtor.org Essentials for August, 2009:

You've decided to purchase a home and take advantage of the 2009 First-Time Home Buyer Tax Credit. Here's what you have to do to get your benefit:
Close on your home purchase by November 30, 2009,
Ensure that you are a qualified first-time buyer under IRS guidelines,
Decide which year to file under, 2008 or 2009,
File an amended 2008 return or choose to apply the credit to your 2009 tax return.

Deciding When to Apply the Credit
If you want the benefits of your credit as soon as possible:
You might choose to file under your 2008 tax year. Since April 15 has already passed, you would have to file an amendment to your return. However, if you've already filed for an extension of your 2008 return, then you can simply claim the credit when you submit your return.

If you anticipate a drop in income next year:
You can wait to claim the credit as part of your 2009 filing. In some cases the value of the credit might be higher, particularly if in 2008 you qualify for only a partial credit because your income is over $75,000 (single) or $150,000 (joint).

Your Next Steps
Once you have determined which year to apply the tax credit, you will need to do two things to claim the credit:
1. Fill out Form 5405 to determine the amount of your available credit, and
2. File an amended return for your 2008 taxes, or wait and apply to credit when you file your 2009 tax return.

Breaking News - May 14, 2009 - First Time Homebuyers may get credit for down payment!

First-time homebuyers will soon be able to access their $8,000 federal tax credit when closing on a home through a short-term bridge loan that will cover their down payment on FHA-backed loans.

The Federal Housing Administration will soon publish a policy that will allow FHA-approved lenders, HUD-approved non-profits, and state and local housing finance agencies to "monetize" the tax credit through short-term bridge loans, Secretary of Housing said Tuesday.

This is a great time to be buying a home!!

$10,000 Tax Credit for New Home Buyers in California

A tax credit has been approved for people who buy brand new homes until March 1, 2010 or when the $100 million dollars allocated has been exhausted, whichever comes first. It’s estimated that only about 10,000 home buyers will receive the credit.

The California tax credit is $10,000 or 5% of the home’s purchase price if the buyer certifies that they will live in the home for at least two years and that the home will be their principal residence. Buyers will receive the credit over three years or $3,333 per year.

Home buyers could qualify for both the federal and California credit programs if they meet all the requirements.

The Franchise Tax Board’s website will track how much of the $100 million is still available starting soon.