Remember That $7,500 First-Time Home-Buyer Credit?

According to reports, the credit has turned into quite a headache for the IRS, as taxpayers who took advantage are supposed to begin repaying the loan.

From WashingtonPost.com:

Under the Housing and Economic Recovery Act, certain homeowners were eligible for a tax credit equal to 10 percent of the purchase price of a home, up to a maximum of $7,500. Married individuals filing separately could get a $3,750 credit. Unmarried people who jointly purchased a home were allowed to divide the credit.

Buyers jumped at the opportunity. Now the repayment process is causing the Internal Revenue Service some frustration.

It was never fair to call the original first-time buyer stimulus a credit. It was an interest-free loan. Those who took the credit are required to repay the government over 15 years in equal installments for any amount received. So if you qualified for the maximum credit of $7,500, this means a yearly loan payment of $500. The loan/credit applied only to homes purchased after April 8, 2008, and before Jan. 1, 2009.

To further boost housing sales, Congress added two additional tax breaks for home buyers. Which credit you claimed depended on when you purchased your home. An $8,000 credit became available for qualifying first-time buyers who generally closed between Jan. 1, 2009, and April 30, 2010. If you had a binding sales contract signed by April 30, however, you had up to Sept. 30 to complete the sale and still qualify for the credit.

Continue reading here…

Pending home sales 'fell off a cliff'

Most economists and financial experts expected home sales to drop off following the April 30th Home Buyers tax credit deadline. They were right.

According to the National Association of Realtors, home sales fell an astounding 30% in May. What may be most incredible is that the sales are down 15.9% from May 2009, when we were just starting to emerge from the recession.

Tax credits, while valuable for the people who can claim them, usually do not impact behavior all that much. People will buy homes if it makes sense for them, not just because they may get a tax break. That logic holds true here. The Home Buyers credit did not motivate new sales. Instead people who were already planning to buy a home simply changed the timing of when they would buy. So, there was a rush to close the sale before the credit expired. People who may have waited until later in the year already closed the deals. Frankly, I don’t think the huge drop in pending sales should be surprising.

Lawrence Yun, the chief economist for NAR believes that home sales will improve once the economy is more stable and unemployment drops. Once that happens, Yun expects home sales to increase dramatically, so long as the favorable prices and mortgage interest rates continue.

Makes sense to me, you can’t buy a home if you don’t have a job. Do you think our real estate market will reach the highs of 2006 again in our lifetime? Tell me your predictions at @ronideutch/Twitter or on Facebook.

You can find out more here.

Senate Combines Jobless Benefits, Homebuyer Credit

While still recovering from a failed attempt to extend unemployment benefits last week, Senate Democrats are working on a new bill that would combine the unemployment benefit extension with an extension of the homebuyer’s credit.

Sponsors of the legislation have said it aims to create more jobs and support the struggling real estate market. As this article from the Associated Press claims, Democrats are going to need to get a handful of Republicans on board if they want the bill to pass the Senate.

Under current law, homebuyers who signed purchase agreements by April 30 must close on their new homes by Wednesday to qualify for credits of up to $8,000. The bill would give those buyers until Sept. 30 to complete the purchases and qualify for the credit.

Democrats hope to pick up Republican support for the bill by combining the two provisions. They have been trying for weeks to pass an extension of unemployment benefits as part of a larger tax and spending package, but the larger bill died in the Senate last week.

Without an extension, unemployment payments would continue to be phased out for more than 200,000 people a week.

Many Democrats see the benefits as insurance against the economy sliding back into recession. Many Republicans, however, worry that adding nearly $34 billion to the budget deficit will only contribute to the nation's economic problems.

Continue reading at Google.com…

200,000 could lose out on homebuyer tax credit

Many homebuyers, as many as 200,000 buyers according to CNN Money.com, could lose out on the $8,000 homebuyer tax credit. This is because many people are trying to purchase short sales, buying homes from sellers who owe more on their mortgage than the home is worth. Despite the name “short sale,” these deals often take a long time for the lender to approve. It could be anywhere from two to six months. This lag time could mean that buyers will lose out on the tax credit because their pending deals won’t be finalized by the June 30th deadline. Taking even more time are the home inspections. The average foreclosed home comes with many problems to repair, and fixing the issues takes time, slowing the process even further.

Richard Smith, CEO of Realogy, the parent company of several franchise real estate brokers started warning buyers back in January that short sales may not close in time to take the credit.

Read the full article here.

Three Signs Housing's Getting Weaker

Towards the end of 2009 there were reports suggesting the housing marketing was improving. However, as this new article from NPR.org points out, new statistics are suggesting a weakening real estate market once again. Listed below are their top three signs that the housing market is getting weaker.

1. Sales of previously-owned homes fell by 2.2 percent in May, the National Association of Realtors said today. Economists were predicting that sales would rise, driven by the tail end of the homebuyer tax credit.

2. Home builders' confidence in the housing market fell this month, according to a monthly survey of the industry.

3. Home prices have been falling this year, according to the Case-Shiller index.

To qualify for the home-buyer tax credit, people had to sign a contract by April 30 and close by June 30. Programs like this often encourage people who are planning to buy a home to hurry up and do it before the program ends. In that way, they sometimes steal home-buyers from future months.

In a note this morning, Ian Shepherdson of High Frequency Economics argued that this phenomenon will lead to more weakness in the housing market in the coming months.

Continue reading at NPR.org…

10 Reasons to Buy a Home in Spite of the Expired Federal Credit

The ongoing foreclosure crisis in this country is enough to make any potential homebuyer nervous. What’s more is that the deadline for the federal tax credit has passed for most taxpayers, and Congress has showed little interest in extending the credit. However, there are still plenty of other great reasons to purchase a home in 2010.

1. Recession Prices

While the market has had some recent hikes in sales – mostly because of the expiring credit and increased action by real estate investors – the total number of homes for sale still outweighs the number of potential buyers. Therefore, home prices are still at their rock bottom, “recession” level prices. However, as real estate sales continue to increase—home values and prices, are likely to rebound.

2. Local Credits

While the federal homebuyers tax credit has expired, dozens of states and local government agencies are offering significant incentives to purchase a home. Despite their economic struggle, California just reinstated a tax credit for homes bought in the state. The program was so popular last year that it ran out of funding in only four months. However, the $200 million put towards the program, which began May 1st, will provide residents up to $10,000 in tax incentives to buy a house.

3. Exceptions to the Rule

While for most of us, the federal credit is no longer an option, there are a few exceptions to the rule. If you are a member of the armed forces or federal employee who was serving outside the U.S during the past year, you may qualify for a one-year extension to claim the credit. Eligible taxpayers will need to enter in to a binding contract on or by April 30, 2011, and close escrow by June 30, 2011.

4. Green Homes

If you intend to make energy efficient upgrades to the home you purchase, you may be able to qualify for a handful of “green” tax credits. There are significant incentives to add solar panels to your home, as well as lesser credits to install energy saving appliances, windows, and heating/cooling systems.

5. Renovation Costs

In addition to making green upgrades, if you plan to make any renovations to a house you are buying then now is the time to do it. The unemployment rates among contractors are at an all time high and you should be able to keep your labor costs low. Additionally, prices for common remodel materials such as granite counters, tiles, carpet, etc. have all gone down over the past few years.

6. Safer Loans

After the major bank bailout occurred, it became clear to everyone that some financial reform was necessary to protect both our economy and American taxpayers. Among the many changes that have occurred, banks have become somewhat tighter on their qualification requirements, making it hard to get approved for a loan that you might not be able to afford.

7. Mortgage Deductions

When you think about the annual expense associated with buying a home, be sure to remember that there are a handful of very valuable mortgage deductions. The IRS will allow you to deduct all interest paid towards your mortgage on your tax return, as long as it is less than $1 million. This can significantly lower your tax bill, and you may even be able to adjust your withholdings to get some of this money throughout the year.

8. Real Estate Taxes

In addition to deducting mortgage interest, you can also deduct any property taxes that you pay your local government agency. Although most homeowners itemize their returns, you can take advantage of the property tax deduction even if you take the standard deduction.

9. Entrepreneurs

If you are thinking about starting a business, then working from home can be a great way to start small while also take advantage of the valuable home office deduction. However, keep in mind that the IRS is strict about claiming deductions for a home office, so be sure to check with a local tax professional before taking the deduction.

10. Investment Opportunity

If you have a secure job, and are looking for an investment opportunity you can control, then you should consider real estate. As I explained earlier, property prices are at an all time low and if you can afford to buy a home, you should see its value increase over the next few years.

Getting A Homebuyer Tax-Credit Through The IRS Can Be Taxing

The homebuyer credit has the IRS busy processing over 1.8 million claims for the credit. As this article from the Wall Street Journal explains, $12.6 billion has already been given out to taxpayers. Check out a snippet of their article on the story below.

Let's get this processing volume into perspective. IRS started processing claims for the first-time home-buyer credit when taxpayers started filing their 2008 tax returns in early 2009. That means IRS employees have processed about 150,000 claims a month.

It's a monumental task. Since discovering millions of dollars of fraudulent claims, the IRS has been reviewing a substantial portion of the claims instead of letting the computer process and pay.

That's where the delays start.

Steve B. said he feels he's being lied to about his tax-credit claim. He filed for his home-buyer credit in January, certain that everything the IRS requested was attached. It's now been more than four months and the IRS simply tells him "it is in the errors department" and they have no further information. Steve has tried calling the IRS "a million times," he said. He's even tried the Taxpayers Advocate Service, but they tell him they don't deal with this issue.

Questions for the Tax Lady: May 3rd, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: My wife and I are planning to buy a house, but we have not signed a contract yet. How much longer do we have before the Federal credit expires?

Unfortunately it looks like you have missed the deadline. In order to qualify for the credit you would have needed to be in contract by April 30^th, and you need to close escrow before June 30^th.

Question #2: I got an email saying it was from the IRS, but it asked me to respond with my Social Security Number and other personal data. Is there a new scam going around?

Do not respond and immediately delete the email. The IRS will never ask you for personal information such as your SSN via email. If you do receive such an email then it is a scam and you should flag it as spam. Alternatively, you can forward the email to phishing@irs.gov to have it looked at by the IRS’ scam investigation department.

Schwarzenegger Proposes New Round of Homebuyer Tax Credits

From the SacramentoBee.com:

Gov. Arnold Schwarzenegger proposed a new round of $10,000 state tax credits this morning for buyers of new and existing homes in California.

He proposed setting aside $200 million for the credits - twice what was allocated last year for tax credits given to more than 10,600 buyers of newly built homes.

The credit could be combined with an $8,000 federal tax credit that expires April 30.

The proposal was part of the governor's job creation strategy outlined in his annual State of the State speech to a joint session of the state Legislature.

The state's homebuilding industry has long pushed for an extension of the credit that last year helped it trim its supply of excess inventory. Builders competing with cheap bank repos have seen fewer sales the past two years than at any time during the half century California has been keeping records.