Final week to enter contract for Federal Tax Credits

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This is the final week for home buyers to enter a binding contract to take advantage of the federal tax credits for certain home buyers.  Eligible purchasers must enter contract by April 30 and close escrow before July 1 to claim the tax credits on their federal tax returns.  A one-year extension may be available for members of the military and other federal employees who served on official duty outside the U.S. for at least 90 days from January 1, 2009 to April 30, 2010.  

First-time buyers may be eligible for up to $8,000, while existing homeowners may be eligible for a tax credit of up to $6,500.  Neither credit requires repayment if buyers live in the residence for three or more years.

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No more State Tax on Forgiven Debt

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They finally passed it. Distressed homeowners no longer have to pay California state income tax on debt forgiven in a short sale, foreclosure or a loan modification. It was just signed into law on Monday. This puts the State in line with the Federal law. For debt forgiven on a loan secured by a “qualified principal residence” borrowers will now be exempt from both federal and state income tax consquences. The existing federal exemption is for indebtedness up to $2 million, where the new California exemption is for indebtedness up to $800,000 and forgiven debt up to $500,000.

“Qualified principal residence” indebtedness is defined as debt incured in acquiring, construction, or substantially improving a principal residence. It includes both first and second trust deeds. It also includes a refinance loan to the extent the funds were used to payoff a previous loan that would have qualified.

The tax breaks apply to debts discharged from 2009 to 2012. Californias who have already filed their 2009 tax return may claim the exemption by filing a Form 540X amendment.

Taxpayers who do not qualify for the above exemptions (for example a second home or rental property) may nevertheless be exempt under other provisions. Most notably, taxpayers who are bankrupt are exempt from debt relief income tax. Also, taxpayers who are insolvent are exempt from debt relief income tax to the extent  their current liablities exceed current assets.

For more information go to California Franchise Tax board Mortgage Forgiveness Debt Relief Extended webpage and the Internal Revenue’s Mortgage Forgiveness Debt Relief Act and Debt Cancellation web page. 

Of course each person’s tax issues are different so check with your tax preparer to see what applies to your specific case.  

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First time home buyer tax credit

If you are looking for your first home the IRS will give you an $8,000 tax credit (maximum, or 10 percent of the sales price, whichever is less) on your federal tax return if you close escrow by April 30, 2010. The credit applies to homes purchased for $800,000 or less, and the credit does not require repayment if you live in this residence for three or more years. If you or your spouse have not owned a home in the last three years you qualify for this credit.

The full $8,000 credit is available to married couples filing a joint return whose modified adjusted gross income is $150,000 or less. You must be 18 on the date of purchase.

Exisiting Homeowner Tax Credit

If you already own a home, but  you want to move up, theres something for you too. Congress also granted existing homeowners a tax credit of up to $6,500 maximum or 10 percent of the purchase price, whichever is less.

To be eligible for this credit you must have lived in your current home for for five consecutive years out of the last eight and must purchase a new or existing home by April 30, 2010. You do not need to sell your current home to qualify for this credit. Single buyers with incomes up to $125,000 and married couples with incomes up to $225,000 may receive the maximum tax credit. Buyers with a written binding contract on April 30, 2010 have until July 1, 2010 to close escrow.

What’s the catch?

No catch. Neither tax credit requires repayment if you occupy the home for three years or longer. buyers who combine these credits with low intterest rates and low median sales prices will have a once in a generation chance to purchase more hme for their dollars.

Claim it

Use IRS form 5405 to claim either credit; the IRS requires a copy of your HUD 1 Settlement Statement to verify the purchase.

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Buying a home and not selling your current home?

As of October 2008 the lenders have changed the way they look at rental income if you are planning on renting out your current home and buying another home. The old rule of thumb where the lender gives you credit for 75% of rental income does not apply any longer.

FANNIE MAE rules as of August 1, 2008

It is much more difficult to qualify for the loan if you are keeping your current home and going to be renting it out and buying a new home. One of these three scenarios must apply:

1. Current home pending sale

  • The lender will count both house payments, the old house and the new house in the qualifying ratios unless there is an executed purchase contract on the old house and all the lenders financing contingencies have been cleared
  • Required cash reserves after closing; enough to make 6 months house payments on both properties, less if you can document 30% equity in the home you are selling

2. Existing home converts to a Second Home

  • Count both house payments, old and new in qualifying ratios
  • Require cash reserves of 6 months house payments on both properties, less if 30% equity in home converting to a second home

3. Existing home converts to a rental property

  • Count both house payments, old and new in qualifying ratios. Rent may be used to offset payment ONLY if a new appraisal verifies 30% equity, home is leased, and security deposit is verified
  • Cash reserves after closing, enough to make 6 months house payments on both properties

Bottom line-

Anytime you are thinking of retaining ownership in your current primary residence and need to close on a new primary residence, you must qualify with both payments and you have cash reserves of 6 months payments for both properties. The only time this does not apply is if you have 30% or more equity in the property you are retaining and a lease with a verified security deposit or the home is sold with a valid purchase contract and all financing contingencies have been removed.

Be sure and speak with your lender as soon as possible if you are thinking of retaining your current primary residence as a rental and purchasing a new primary residence. Your lender can advise you as to the best way to proceed.

WOOHOO! $8,000 Tax Credit extended and Expanded!

Homebuyer Tax Credit Update!

On November 6, 2009, President Obama signed a bill to extend the tax credit for first-time homebuyers April 30, 2010. The bill also opens up opportunities for others who are not buying a home for the first time.


Who Gets What?

First-Time Homebuyers (FTHBs):First-time homebuyers (that is, people who have not owned a home within the last three years) may be eligible for the tax credit. The credit for FTHBs is 10% of the purchase price of the home, with a maximum available credit of $8,000

Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

Current Owners: The tax credit program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

What are the New Deadlines?

In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.

What are the Income Caps?

The amount of income someone can earn and qualify for the full amount of the credit has been increased.

Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible

Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.

What is the Maximum Purchase Price?

Qualifying buyers may purchase a property with a maximum sale price of $800,000.
What is a Tax Credit?

A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual’s primary residence.

How Much are First-Time Homebuyers (FTHB) Eligible to Receive?

An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10% of the purchase price for a home. If the amount of the home purchased is $75,000, the maximum amount the credit can be is $7,500. If the amount of the home purchased is $100,000, the amount of the credit may not exceed $8,000.

Who is Eligible fort FTHB Tax Credit?

Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible.

This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.

As mentioned above, the tax credit has been expanded so that existing homeowners who have owned and occupied a primary residence for a period of five consecutive years during the last eight years are now eligible for a tax credit of up to $6,500.

How Much are Current Home Owners Eligible to Receive?

The tax credit program includes a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Can Homebuyers Claim the Tax Credit in Advance of Purchasing a Property?

No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.

Are There Other Restrictions to Taking the FTHB Credit?

Yes. According to the IRS, if any of the following describe a homebuyer’s situation, a credit would not be due:

  • They buy the home from a close relative. This includes a spouse, parent, grandparent, child or grandchild. (Please see the question below for details regarding purchases from “step-relatives.”)
  • They do not use the home as your principal residence.
  • They are a nonresident alien.
  • They owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2005, through July 1, 2008.

 Can Homebuyers Purchase a Home from a Step-Relative and Still be Eligible for the Credit?

Yes. As long as the person they buy the home from is not a direct blood relative, the purchase would be allowed.

If a Parent (Who Will Not Live In The Property) Cosigns for a Mortgage, Will Their Child Still be Eligible for the Credit?

Yes, provided that the child meets the other requirements for the tax credit.

As always regarding tax talk, check with your own personal tax advisor to discuss your situation to confirm you qualify.

Extension of $8,000 tax credit very possible!

Senators Say Homebuyer Tax Credit Is “In the Bag”

10/28/2009 By: Carrie Bay

S. Senate’s chief Democrat, Majority Leader Harry Reid (Nevada), said Wednesday that his party has reached a consensus to extend the first-time homebuyer tax credit, which is set to expire November 30.


Senate Banking Committee Chairman Christopher Dodd (D-Connecticut) has voiced the same sentiment to the media today, as well.

But the party support isn’t one-sided. Reuters reported that the chamber’s foremost Republican, Sen. Mitch McConnell (Kentucky), acknowledged that most senators support the measure, quoted by the news agency as saying he shares Reid’s view.

Reid summed it up on the Senate floor when he said, “There has been general agreement by a significant number of senators, Democrats and Republicans, to get this done.”

As reported Tuesday, the proposal gaining the most favor among Senators was an amendment offered up by Reid and Senate Finance Committee Chairman Max

Baucus (D-Montana), which would extend the tax incentive until the end of 2010, but reduce the credit amount with each quarter.

Take two: The tax break measure has gotten yet another makeover. The latest version reduces the credit to 10 percent of the sale price, with a cap of $7,290 – as opposed to the $8,000 maximum currently in place. The benefit could be applied to home sales signed – not closed – by April 30, 2010, allowing 60 days beyond that date for closing.

It would also be opened up to buyers who have lived in their current residence for at least five years, so-called step-up buyers. The income limits for first-time homebuyers would stay the same – $75,000 for individuals, $150,000 for couples – but increase for step-up buyers to $125,000 for individuals and $250,000 for couples.

Andrew Parmentier, a managing partner at Height Analytics, a research firm in Washington, told Bloomberg Newsthat the demand for new homes and condominiums may more than double with step-up buyers as part of the equation. “You just opened up a whole new pool of people who can buy into those empty homes and empty condos that were built out,” Parmentier said – a move that would aid the existing-home market as well, as overall inventory levels are reduced.

A Senate vote on the credit extension was expected to come last night, but reportedly got entangled in legislative procedural issues. The tax credit amendment did not get attached to an insurance benefit bill, which did pass Tuesday night, as intended. Despite the red-tape roadblock, senators say a decision will be made sometime this week.

Article provided by DSN news on 10/29/09

Well, there are a couple of different options they are working on right now in the Senate so it is extremely hopeful that the $8,000 tax credit will be extended or a modification of the current tax credit. Good news for everyone! I will keep you posted as I hear more next week.

Suggestions to improve service to our clients

Can you help me? I need suggestions from potential Buyers and Sellers on how as Realtors we can provide better service to our clients. What can we do to improve as an industry?

I know one of my pet peeves are Realtors that don’t answer their phones or bother to call you back if you do leave a message.

What are your pet peeves?

Sacramento County Market June 09

The current market offers a variety of low-priced, move in ready homes as well as properties that are in need of significant repairs. One thing they have in common is the people they attract: Investors. As home prices dropped over the last year, Sacramento has seen a steady rise in the percentage of cash sales. Statistics retrieved from the Metro List MLS data base show that 25.1% of sales in May 2009-467 units-were purchased with cash. Compared with last month, where April had 503 cash sales (accounting for nearly 28% of all sales) there is a 7.2% decrease. May’s cash only sales, however show a 158% increase from the 181 cash only sales (10.2%) of May 2008.

May’s statistics continue a trend; however, that has showed little movement in three months. Sales records for the last three months have shown 1,725 sales in March, 1,707 sales in April and 1,733 sales in May. From April to May, there was a 1.5% increase in sales. The 1,733 single family home sales this month is a 4.8% increase from the 1,654 sales of May 2008.

The median sales price made an unexpected move, increasing 7.7% from $167,000 in April to $180,000 this month. This increase marks the largest month to month median sales price increase recorded by the Association. Compared year over year, the $180,000 median sales price is 21.8% below the the $230,250 median price of may 2009. The total listing inventory also dropped year to year from 7,902 listings, a 35.9% decrease. This lowered inventory figure also drops the Housing Market Supply figure from 6.5% to 3.9 months in April to 2.9 months in May. Compared with last year, this figure is a 39.6% decrease from the 4.8 months recorded May 2008. This represents the amount of time-in months-it would take to deplete the total listing inventory given the current rate of sales. According to MLS data, the average home spent 55 days on the market before selling and measured just over 1,699 square feet.

All in all, it is a very active market right now with multiple offers on properties and a lot of the buyers have cash!