First Time Home Buyer $8,000 Tax Credit - Frequently Asked Questions

1. Who is eligible to claim the tax credit?
First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.

2. What is the definition of a first-time home buyer?
The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

3. How is the amount of the tax credit determined?
The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.

4. Are there any income limits for claiming the tax credit?
The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.

5. What is "modified adjusted gross income"?
Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.

6. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
Possibly. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phase-out limits.

7. Can you give me an example of how the partial tax credit is determined?
Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phase out to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.

8. How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008?
The most significant difference is that this tax credit does not have to be repaid. Because it had to be repaid, the previous "credit" was essentially an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount. Certain exceptions apply.

9. How do I claim the tax credit?
Do I need to complete a form or application?Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on Line 69 of their 1040 income tax return. No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests.

10. What types of homes will qualify for the tax credit?
Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.

11. I read that the tax credit is "refundable." What does that mean?
The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).

12. I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns. How can I claim the new $8,000 tax credit instead?
Home buyers in this situation may file an amended 2008 tax return with a 1040X form. You should consult with a tax advisor to ensure you file this return properly.

13. Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after January 1, 2009 and before December 1, 2009.In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.

14. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
Yes. The tax credit can be combined with the MRB home buyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.

15. I live in the District of Columbia. Can I claim both the Washington, D.C. first-time home buyer credit and this new credit?
No. You can claim only one.

16. I am not a U.S. citizen. Can I claim the tax credit?
Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of "nonresident alien" in IRS Publication 519.

17. Is a tax credit the same as a tax deduction?
No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.

18. I bought a home in 2008. Do I qualify for this credit?No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit.

19. Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 tax return?
Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the down payment.Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.Further, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. Some state housing finance agencies, such as the Missouri Housing Development Commission, have introduced programs that provide short-term credit acceleration loans that may be used to fund a down payment. Prospective home buyers should inquire with their state housing finance agency to determine the availability of such a program in their community.

20. If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.Taxpayers buying a home who wish to claim it on their 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult with a tax professional to determine how to arrange this.

21. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?
Yes. If the applicable income phase-out would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.

Key Provisions of the American Recovery and Reinvestment Act

Tax Provisions

1. $8,000 first-time home buyer, true tax credit (no repayment) for the purchase of a principle residence between January 1 and December 1, 2009. Recaptured if home is sold within three years. Removes the restriction on the use of tax credit proceeds with Housing Finance Agency-issued tax exempt mortgage revenue bonds.
   
2. Short-term gap financing for Low Income Housing Tax Credit (LIHTC) projects: Provision allowing states to turn in portion of 2009 LIHTC allocations for cash. Special appropriation of $2 billion in HOME funds.
   
3. Up to a ten-year deferral of tax from business debt cancelled as part of a repurchase or restructuring.
   
4. 5-year carryback of 2008 net operating losses for businesses with gross receipts of less than $15 million (three year average).
   
5. Extension of enhanced bonus depreciation.
   
6. Extension of increased small business expensing.
   
7. Enhancements to the section 25C program for energy efficiency remodeling improvements to existing homes.
   
8. One-year patch of the Alternative Minimum Tax.
   
9. Increase New Markets Tax Credit allocating authority for 2008 and 2009.
   
10. Delays for one year the start of 3% government contractor withholding requirement.
    

Appropriations Provisions

1. $2 billion for full year payments to owners of Section 8 project based rental assistance properties.
   
2. $2.25 billion through HOME program and Low Income Housing Tax Credit program to fill financing gaps.
   
3. $1 billion for CDBG.
   
4. $2 billion for Neighborhood stabilization program.
   
5. $1.5 billion for homelessness prevention activities (help with rents, etc).
   
6. $250 million for energy retrofitting and green investments in HUD assisted projects.
   
7. $1 billion for Section 502 direct loans under the Rural Housing Service.
   
8. $10.4 billion for Section 502 guaranteed loans under the Rural Housing Service.
   
9. $27.5 billion for highway spending.
   

Other Key Provision

1. Increases in FHA, Fannie Mae and Freddie Mac loan limits to 2008 levels.
   

Great Rental Investment - NO VACANCY RISK!

Current monthly rent is $1,800 and can be extendeed for several years as needed. Home expenses are very low. Property capitalization rate is 6.7%. Cashflow breaks-even with little or no money down. Most properties in Portland require a 30% - 35% downpayment investment to get cashflow to break-even.

You won't find a Single Family Residential investment like this one!

Home is a Premier Oxford House.
Visit this program at www.oxfordhouse.org

DIVORCE FORCES SALE.

Offered at $249,900

Built in 1960
Over 2400 SF
Quarter Acre Lot

Housing Is a Good Long-Term Investment

Here are some financial benefits to owning a home:

· Over the past 30 years, home values have risen more than 6 percent annually.

· On average, the value of a home has nearly doubled every 10 years.

· 60 percent of the average homeowner’s wealth comes from their home’s equity.

· The average homeowner’s net worth is $171,000 – that’s nearly 46 times that of a renter’s, who has an average net worth of $4,800.

· Homeowner’s benefit from the power of leverage. At an annual appreciation rate of 5 percent, a 10 percent down payment on a home will return 94 percent after 3 years. After 5 years, the rate of return increases to 225 percent and after 10 years, 623 percent.

* All information provided by the national Association of Realtors. This is not a promise of future returns. Data based on historic percentage returns.

How Long Will It Take To Sell My Home?

Some homes sell in a few days, while others may take several months. Recognizing key factors we control that influence the market may significantly reduce the time it takes to sell.

These include:

Condition of the property. Optimize the physical appearance to maximize value. Short of spending lots of money, there are several steps you can take to make your home show better:

- Sweep the sidewalk, mow the lawn, prune the bushes, weed the garden and clean debris from the yard.

- Clean the windows and make sure the paint looks fresh.

- Be sure the front door looks its best.

- Clean and de-clutter all rooms. Ensure the kitchen and bathrooms are spotless.

- Organize closets.

- Make sure the basic appliances and fixtures work. Replace leaky faucets.

- Make sure the house smells good. Clean and fresh, not artificial.

- Put fresh flowers out throughout the house.

Price it at the Market. A well priced home is the most important factor in selling for a top price within a reasonable time. Naturally, listing too low may generate a faster sale but will preclude the opportunity for getting top dollar. On the other hand, setting the price too high discourages showings to the people who are most likely buyers. And if a home sits on the market for too long, buyers may perceive a problem and avoid buying a home they believe will be hard to resell.

Marketing that professionally advertises your home to a broad market. The amenities of your home should speak for themselves, but attracting buyers to your door is where an aggressive, intelligent, and tasteful marketing plan is key. Use of new technologies like the internet should be a top priority. The first showing of your home will likely be on-line as over 80 percent of home buyers are using the internet.

Accessibility cannot be overstated. A home that is difficult to see will likely take longer to sell, if at all. Create an inviting atmosphere and minimize the appointment barriers to view your home.

Darin Provost - All Rights Reserved ®

Why it a Great Time to Buy a Home

With more homes to choose from, prices softening, interest rates still at their lowest, and more time to make a rational buying decision, it’s a great time to buy a home.

Future buyers, here are a few things to consider -

Selection
There are almost 15,000 homes on the market in the Portland Metro area – an amount almost three times higher than 2005. Just two years ago the inventory of homes dropped below 6,000 and buyer’s were rushed and forced to make compromises. Today’s buyers can find homes closer to work, within biking or walking distances to schools, transit, and community hotspots.

Pricing
Just two years ago buyers were dealing with multiple offers and fast escalating prices. It was common for multiple buyers to bid up the price of a property. Often there were escalation clauses where buyers authorized their brokers to outbid other offers by thousands of dollars. Today, the market has relaxed and competitive bidding is rare. Selling prices are often below asking price, and a seller isn’t likely to be insulted if a buyer “makes them an offer they can’t refuse.”

Patience is Tolerated
Buyer’s can take more time in their search and decision to buy. In the hot seller’s market two years ago, everything was rushed as buyer’s had to find the home before others, and hurry to make an offer.

Due Diligence is Welcomed
Today a buyer is encouraged to obtain the necessary home inspections. Two years ago many home buyers waived these contingencies in order to gain advantage with multiple offers.

Repair Requests are Welcomed
After a buyer completes a home inspection, they are allowed to submit a repair request to the seller. In the past a seller might have insisted the home be sold “as-is.”

Fewer Investors
It is estimated that one third of all sales in 2005 were to investors. These buyers increased competition and caused the market prices to inflate.

Financing is Available
Interest rates continue at their lowest making homes are more affordable. Fixed rates are back and will be looked back upon as a great financial opportunity. FHA and first time homeowner bond programs that allow low down payment options are still available.

It truly is a great time to buy!

Darin Provost - All Rights Reserved ®

Opportunities in a Buyer's Market

Just two years ago sellers were dealing with quick sale times, multiple offers and fast escalating prices. The market was so hot that some buyers were gladly discarding the use of standard contingencies such as financing and professional inspections, just so they could get to the front line of other purchasers. The past two years have brought a change from those fast times. From the start of Spring 2006 we watched the market gradually shift with the drumbeat of clichés about a “bursting bubble” and “hard landings vs. soft landings.” Ultimately consumers began to believe what they were hearing and a slower marketplace became a self-fulfilling prophecy as buyers stepped away. Clearly, today it has become a buyer’s market.

For most homebuyers, livability is the major factor in their purchase: location, schools, safety, commutes, etc. These motivations don’t change due to the economics of the marketplace. However, what seems to have occurred is that buyers are hesitant to take the plunge, believing that for some reason “this isn’t the right time.”

Buyers, here are a couple concepts to remember:

The condition of the national market does not completely represent the local market. Portland is a unique place, primarily due to its attractive quality of life. Relying on news reports about the national housing market in making decisions locally is like looking at the national weather in making plans for a days’ outing.

Profit on resale is primarily determined by what you pay for the home, not what you sell it at. Two years ago, owners were selling their homes at the top of the market, and those who made the real money were the ones who paid the least when they bought. Keep in mind, a seller usually become buyer – which means that selling at the top of the market only results in buying at the top of the market.

Finally, with more homes to choose from, prices softening, interest rates still at their lowest, and more time to make a rational purchasing decision, what more could a buyer ask for?

* Portland Metropolitan Association of Realtors and Phillip C. Querin, Partner, Davis Wright Tremaine.