1324 Bexley Street - PARK CIRCLE

AMERICAN RECOVERY AND REINVESTMENT ACT - $8,000 TAX CREDIT

"The new credit can get money in the pockets of first-time homebuyers quickly," said IRS Commissioner Doug Shulman. "For people who recently purchased a home or are considering buying in the next few months, there are several different ways that they can get this tax credit even if they've already filed their tax return."

How the tax credit works
The bill provides up to an $8,000 refundable tax credit (or up to 10% of the purchase price). If the property is $75,000, the credit is only $7,500.

• The credit is available to first-time buyers of a principal residence on or after January 1, 2009 and before December 1, 2009. This is someone who did not own another main home at any time during the three years prior to the date of purchase.

• The credit does not require repayment. The credit will be claimed on a tax return to reduce the purchaser's income tax liability.

• If the buyer's tax liability in the given year is less than $8,000, the IRS will send a refund for the balance.

According to the 2008 IRS Tax Tables: A single filer would need $46,600 in taxable income to have $8,000 in tax liability. A couple would need $58,600 in taxable income to have $8,000 in tax liability.

• Taxpayers whose income is more than $75,000, or $150,000 for joint filers can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately.

Exceptions
If any of these conditions exists, the credit will not be available.

• Income exceeds the phase-out range. $95,000 for individuals, $170,000 for couples.

• The home is purchased from a close relative. This includes spouse, parent, grandparent, child or grandchild.

• You stop using your home as your main home.

• If the home is sold prior to three years of ownership, the tax credit must be repaid.

• You are a nonresident alien.

How to file
(This information published by the Internal Revenue Service. IRS Newswire, March 18, 2009)

For people who recently purchased a home or are considering buying in the next few months, there are several different ways that they can get this tax credit even if they've already filed their tax return.

The credit may be claimed on 2008 tax returns due April 15 or on 2009 tax returns next year.

The Treasury Department encourages taxpayers to explore these options to maximize their credit and get their money back as fast as possible.

The filing options to consider are:

• File an extension - Taxpayers who haven't yet filed their 2008 returns but are buying a home soon can request a six-month extension to October 15. This step would be faster than waiting until next year to claim it on the 2009 tax return. Even with an extension, taxpayers could still file electronically, receiving their refund in as few as 10 days with direct deposit.

• File now, amend later - Taxpayers due a sizable refund for their 2008 tax return but who also are considering buying a house in the next few months can file their return now and claim the credit later. Taxpayers would file their 2008 tax forms as usual, then follow up with an amended return later this year to claim the homebuyer credit.

• Amend the 2008 tax return - Taxpayers buying a home in the near future who have already filed their 2008 tax return can consider filing an amended tax return. The amended tax return will allow them to claim the homebuyer credit on the 2008 return without waiting until next year to claim it on the 2009 return.

• Claim the credit in 2009 rather than 2008 -This could benefit taxpayers who might qualify for a higher credit on the 2009 tax return. This could include people who have less income in 2009 than 2008 because of factors such as a job loss or drop in investment income.

If you have questions about the $8,000 tax credit or are interested in buying or selling property in the Lowcountry, please don't hesitate to call Owen at 843.224.5398 or e-mail Owen@OwenTyler.com.

SO YOUR PRE-APPROVED, WHAT DOES THAT MEAN

Everyone knows that getting a loan today is dramatically different than it was 12 months ago.

Today all prudent Buyers should be pre-approved by a reputable mortgage professional before stepping foot in any house. Of course that pre-approval is no guarantee that you will be given a loan to purchase your new home.

As a matter of fact banks are now waiting until the 11th hour to tell Buyers they don't qualify leaving them with out of pocket appraisal fees, application fees, attorney fees and homeless.

If you are a Buyer here are some handy tips when you decided to purchase a home:

1. If you are working with a REALTOR ask that professional who they would recommend, I can assure you no REALTOR in their right mind is going to spend time showing someone property that has an "iffy" pre-approval letter.

2. When you meet with the mortgage professional be completely honest, don't try to paint a better picture than reality. If you only have $500 in cash or have only been at your job for 1 year and 8 months, be honest.

3. Take a look at your credit report with the mortgage professional, most are prohibited from giving you the report, but you should know what it says.

4. Before you arrive at your appointment have two years W-2s, a fairly accurate estimate of cash on had and investments, and your most recent paycheck stub.

5. Understand that the interest rate you are quoted is a function of your credit score, income and expense, amount of down payment, and even work history. You are completely and totally responsible for your credit score. And if something on the report is incorrect it is your responsibility to correct it.

6. Get your pre-approval letter in WRITING, with a list of any remaining items needed to get your loan approved.

7. And don't be afraid to shop around not all banks and lenders are the same, all have different minimum credit scores and requirements for many of the same types of loan programs.

8. Once you have found a mortgage professional with a loan program you are happy with get a Good Faith Estimate in WRITING so that you know how much money you are expected to have at closing and what the fees will be for your loan.

9. And finally keep in touch with your mortgage professional on a weekly basis. Check-in to see the status of your loan, ask if additional information is needed, and when the mortgage professional asks for documentation get it over ASAP, that is key. And if things are starting to head south, let your REALTOR know immediately, he or she can step in and help you out.

If you are considering a purchase or just have questions about the market or mortgage process please give Owen a call at 843-224-5398. Owen is a preferred REALTOR with several reputable mortgage companies that offer discounts to his clients on purchases and refinances.

GREAT BUY ON JAMES ISLAND

If you have any questions regarding purchasing property in the greater Charleston area, or selling your property, please feel free to call or e-mail, 843-224-5398 or Owen@OwenTyler.com.

Senate's Homebuyer Tax Credit

Bloomberg.com posted a great comparison on the Homebuyer tax credit that passed the Senate.

Senate’s Tax Credit Favors Higher-Income Homebuyers (Update1)
By Ryan J. Donmoyer

Feb. 7 (Bloomberg) -- The U.S. Senate is working to boost home purchases among six-figure-income households, turning away from Bush administration policies that helped fuel a property bubble.

By replacing a $7,500 tax credit for first-time homebuyers earning less than $150,000 with a $15,000 break for all income groups as part of the economic stimulus package, senators are encouraging purchases by higher-income households with a reduced risk of default.

A sponsor of the measure, Republican Senator Johnny Isakson of Georgia, said the credit is aimed at helping restart the stalled housing market. It would do so without the “far too loosey-goosey” underwriting standards of recent years that spurred an explosion of defaults by unqualified borrowers, he said.

“By doing it the way we did, people making $120,000 are more likely to be motivated to buy a house,” Isakson said.

Unlike the current law, the $35.5 billion provision wouldn’t be restricted to first-time homebuyers. It also would end homebuyers’ ability to claim the full credit if it exceeds the amount they owe in taxes.

The effect would be to wipe out the $15,000 of income tax a family of four earning about $122,000 would otherwise owe this year if they bought a house. A family earning half that amount would get about $2,300 less in tax benefits for buying a home than they would under current law.

Stimulus Package

The Senate credit, approved Feb. 4, is included in a broader $780 billion stimulus package the chamber may vote on Feb. 10. The provision faces an uncertain future because it would have to win support in the House of Representatives to be included in the final economic stimulus plan. If enacted by Congress, it would take effect the day President Barack Obama signed it into law. Obama, 47, said this week in an interview with Fox News that tax cuts for people who buy homes or businesses “has some potential and I’m willing to take a look at it.”

Some lending experts said it isn’t clear whether the tax credit would jumpstart the housing market, especially while the broader economy is still in recession.

Concerns on Economy

“There are stronger forces at work here,” including fears about the economy, fears that housing prices remain too high, and expectations that Congress may still subsidize mortgage rates, said Ricardo Kleinbaum, a credit analyst at BNP Paribas in New York. “If you can’t afford a house today, it’s not going to make much of a difference.”

The credit, which is worth the lesser of $15,000 or 10 percent of a house purchase price, was added to the stimulus bill along with a break to spur car purchases. That provision gives a credit to people who have bought a new car since Nov. 12, 2008, or buy one before Dec. 31, and also gives the biggest savings to higher-income earners.

The Senate-passed credit for homebuyers, unlike the existing $7,500 credit, isn’t refundable, which means house purchasers who owe less than $15,000 in federal income tax won’t get the full benefit in a single year.

Instead, the Senate provision would allow homeowners to split the $15,000 into two separate tax credits of $7,500 to be taken in successive years. To pay $7,500 in federal taxes, a family of four would have to earn about $92,125, according to Internal Revenue Service tax tables.

No Refund

Lower-income people whose taxes over two years don’t total $15,000 won’t get the full benefit and in many cases would get a better deal under current law, which requires the government to send a check for the difference between taxes paid and the $7,500 credit.

Under existing law, the $7,500 has to be repaid. The Senate bill wouldn’t require the $15,000 credit to be repaid. In its version of the economic stimulus bill, the House agreed only to waive the repayment requirements, though it left the refundable credit at $7,500 and preserved income limits for eligible users.

Roberton Williams, a senior fellow at the Urban-Brookings Tax Policy Center in Washington, said the new housing credit would stabilize housing prices, though he questioned whether such intervention is necessary.

“This is saying we’re going to put a floor underneath how far housing prices are going to fall,” Williams said. “It may well induce a lot of people to buy houses who otherwise might not have,” he said.

‘Awful Lot of Money’

At the same time, Williams said, the measure may not have a big effect because a large number of people would still buy a house even without the benefit. “If they’ve really given it to everybody then its spending an awful lot of money on activities that will already happen,” he said.

Stephen Fuller, a housing economist at George Mason University in Fairfax, Virginia, said the credit is similar to a $5,000 break enacted in 1975 for buyers of newly constructed, never-occupied homes that reduced backlogged housing inventories to the point where demand for new construction was stimulated.

“The logjam right now is in the trade-up market,” Fuller said. “There’s a lot of pent-up demand. They’re ready and able once they get the go-ahead signal; this may be that kind of signal.”
Dean Baker, co-director of the Center for Economic and Policy Research in Washington, said the risk is the tax credit will act as an incentive for people who don’t need one, because the Senate measure favors higher-income earners.

“It’s close to the craziest thing I could think of,” Baker said. “The vast majority of users will just be people shuffling houses.”

‘Game the System’

In some cases, he said, people will try to “game the system” and engage in sham sales with trusted relatives or business partners to claim the credit, although tax lawyers said anti-abuse rules in the tax code may limit such fraud.

The breaks for car purchases, championed by Maryland Democratic Senator Barbara Mikulski, are limited to families that earn less than $250,000 that spend less than $49,500 on a new car. A 6 percent sales tax on a $25,000 minivan would be $1,500; deducting that would save a family between $150 and $495 in federal taxes, depending on their income-tax bracket. Tax savings from interest deductions also would vary depending on tax brackets.

“The deduction for the automobile purchases is going to be more valuable for middle-income and higher-income people,” said Robert Carroll, vice president for economic policy at the Tax Foundation, a Washington research group.

Carroll questioned the wisdom of both breaks, saying they would artificially prop up failing industries while encouraging overleveraged taxpayers to borrow more.

“Propping up a failing industry is certainly outside the scope of stimulus,” he said. “Households who are overleveraged and businesses that are overleveraged are much more susceptible to financial distress. You’d think Congress would know better.”

To contact the reporters on this story: Ryan Donmoyer in Washington at rdonmoyer@bloomberg.net;

Last Updated: February 7, 2009 13:04 EST