Tax Credit Info

Tax Credit FAQs

Sat, 26 Dec 2009 23:24:22 -0600

NAR Frequently Asked Questions Homebuyer Tax Credit Changes
National Association of REALTORS® Government Affairs Division
500 New Jersey Avenue, NW, Washington DC, 20001

Here are some of the most frequently asked questions on the changes to the Homebuyer Tax Credit

Question: Existing homeowner credit: Must the new house cost more than the old house?

Answer: No. Thus, for example, individuals who move from a high cost area to a lower cost area who meet all eligibility requirements will qualify for the $6500 credit.

Question: I am an existing homeowner. On October 25, 2009, I signed a contract to purchase a new home. I have lived in my current home for more than 5 consecutive years and am within the new income limits. I will go to settlement on November 20. If President Obama has signed the bill by the time I go to settlement, will I qualify for the new $6500 tax credit?

Answer: Yes. The existing homeowner credit goes into effect for purchases after the date of enactment (when the bill is signed). There is no reference to the date of contract for the new credit. The provision looks solely to the date of purchase, which is generally the date of settlement.

Question: I am a first-time home-buyer but was not within the prior income limits at the time I entered into my contract to purchase on October 30, 2009. I will be covered, however, by the new income limits. If the new rules have been signed into law by the time I go to settlement, will I be eligible for a credit?

Answer: Yes. The new income limitations go into effect as soon as the President has signed the bill. The income limit and other eligibility rules will look to your status as of the date of purchase, which is the settlement date. So if the new rules have been signed when you go to settlement, you should be eligible for the credit (or a portion of the credit if you're within the phaseout
range).

Question: I am an eligible existing homeowner. I have a fair amount of equity in my home. I have found a home with a nonnegotiable price of $825,000. Will I be able to use any of the $6500 tax credit?

Answer: No. The $800,000 cap on the cost of the purchased home is firm at $800,000. Any amount above $800,000 makes the home ineligible for any portion of the credit. The $800,000 is an absolute ceiling.

Question: I owned my home for 10 years, but sold it two years ago year and have been renting since. If I purchase a home, will I be eligible for the $6500 tax credit if I meet all the other eligibility tests?

Answer: Yes. Because you lived in the home for more than 5 consecutive years of the previous 8, you will qualify for the $6500 credit. For example, Say John and his wife bought a home in 2000 and lived there until 2008 when he got a divorce. Whether John has been renting or bought in the interim, he WOULD INDEED be eligible for the credit because he owned a home and occupied it as his principal residence for 5 consecutive years out of the last 8 years. The keyword here is "consecutive." As long as he lived in that house for 5 years straight what he did since 3 years doesn't impact eligibility.

Question: I am an eligible first-time home-buyer. I entered into a contract to purchase on November 1, 2009. Do I have to go to closing before December 1? How does the extension date affect me?

Answer: You do not have to close before December 1. Once the legislation has been signed, it will be as if the Nov 30 date had never existed. Therefore, so long as the contract settles before April 30 (or July 1, worst case), the purchaser will be eligible for the credit.

Applying the Home Buyer Tax Credit to Your 2008 Return

Sat, 26 Dec 2009 14:11:55 -0600

From the National Association of Realtors (NAR)
To claim the credit on your 2008 taxes, you must file an amendment to your 2008 return. To do this you will need two forms: Form 1040X (PDF 365K ) for filing an amended return; and Form 5405 (PDF 257K) for the home buyer tax credit.
You can visit the IRS site using the links, print out, and fill in the forms manually or type into the forms and save them on your computer. Be aware, though, that the 1040X tax form can only be filed in hard copy, and cannot be submitted electronically.
1. First, fill out Form 5405 using the instructions in Determining the Amount of Your Home Buyer Tax Credit.  
2. Then fill out Form 1040X.  On the 1040X you'll find a section called "Payments." Look for Line 15, "Credits." On this line you have three columns. On the first you list the credits you took in your original filing (for most people, this will likely be zero); on the second you list any new credits; and on the third you list the "correct" amount (that is, what the new amount should be). 
3. If in your original filing you took no credits, you enter a zero in the first column. 
4. In the second column you enter the amount of your credit, which for many people will be the full $8,000. 
5. And in the third column you list the correct amount, which in most cases simply means restating the $8,000. 
6. Add your housing tax credit amount to any other amendments you're making then total all the amendments up.  
7. On the back of the form, write an explanation of why you're filing the amendment. Here you should explain in 2-3 sentences why you want to take the credit. You should include the day that you closed on the house and mention that you're electing to amend your 2008 return rather than wait until 2009. 
8. Finally, attach Form 5405 to Form 1040X and file your amended return.

Collecting Your Refund
Any adjustment to your 2008 taxes along with any refund for which you qualify will be sent to you. Since the tax credit is fully refundable even if your tax liability is less than the tax credit amount, you get the full value of the credit. That means the IRS will cut you a check for the balance.

Applying the Home Buyer Tax Credit to Your 2009 Return

Sat, 26 Dec 2009 14:10:11 -0600

From the National Association of Realtors (NAR)
Breaking News: Tax Credit Can Be Used on Closing Costs.
To claim the credit as part of your 2009 return, you will need: The standard Form 1040 and Form 5405 for the home buyer tax credit.
1. First begin Form 1040. 
2. Be sure to take note of your adjusted gross income, which you enter on lines 37 of the form. Form 5405 actually requires you to note your modified adjusted gross income, but that affects few people, so most will just use their adjusted gross income. 
3. When you come to Line 69 you'll be asked to enter your tax credit amount. To do that, you'll need to first complete Form 5405.  
4. Once you complete Form 5405, enter the amount on Line 69, then complete your return. 
5. Attach Form 5405 to your return.

Collecting Your Refund
Any refund for which you qualify will be sent to you.

Bridge Loans: Using the Home Buyer Tax Credit Up-Front

Sat, 26 Dec 2009 14:06:05 -0600

From the National Association of Realtors (NAR)
In mid-May 2009, the U.S. Department of Housing and Urban Development (HUD) launched a program that would allow federally approved lenders to offer bridge loans to cover closing costs for borrowers who take the 2009 First-Time Homebuyer Tax Credit and who use financing backed by the Federal Housing Administration (FHA). These loans allow buyers who are eligible for the credit to apply those funds towards their downpayments and closing costs, using the credit as collateral. Once buyers receive the credit after filing their 2009 tax returns, the money will then be used to repay the bridge loan.
Due to considerable challenges in making these loans widely available, few lenders are currently offering these bridge loans. However, there are still many other funding sources to explore, including:
1. State Housing Finance Agencies
2. Local Governments and Nonprofit Agencies
State Housing Finance Agencies
Determining whether your state has a program  As of mid-2009, more than a dozen state housing finance agencies (HFAs) were offering bridge loans to prospective buyers, and many more were planning to do so. Currently, the following states have programs in place: Colorado, Delaware, Idaho, Illinois, Kentucky, Missouri, Nebraska, New Jersey, New Mexico, Ohio, Pennsylvania, Tennessee, Texas, and Virginia.
To determine whether or not your state has begun offering these loans, you can:
• Find your state's HFA phone number on the National Council of State Housing Agencies' (NCSHA) member list.
• Consult the NCSHA's list of HFA's offering bridge loans.
If your state offers these loans, information should be available on the state's HFA web site, which should be listed on one of the pages above.
Things you should expect from a state HFA advance loan  Although state HFA bridge loans differ from state to state, here are some typical characteristics
• Buyers will need to make a minimum down payment from their own funds—probably approximately $1,000.
• A local lender approved by the HFA will need to originate the loan, since HFAs themselves do not originate loans.
• Buyers will use HFA-backed financing for their mortgages.
Other things to note about HFA bridge loans
• Some are interest-free, others are not. So be sure to check with your lender.
• HFAs have limited funds to devote to these bridge loans, so they are often made on a first-come, first-served basis.
Applying for an HFA loan
Since this financing often includes a below-market interest rate, it requires borrowers to meet eligibility criteria—often these include being a first-time buyer, and meeting income requirements. For the bridge loans, there’s a good chance the criteria will be similar to what’s required for the tax credit.
Local Government/Non-Profit Associations
If your state HFA does not offer loans, the staff may be able to direct you to local nonprofit organizations that do have programs—if any exist.
Another good place to start a search is NeighborWorks, a national nonprofit which maintains a list of more than 200 local affiliates that provide housing assistance. Each affiliates' loan program will be different, so buyers should be sure that the organization offers bridge loans repayable with the tax credit, and that they understand the underwriting standards and loan terms.
FHA-Approved Lenders
If you are unable to identify other sources of funding, you may be able to obtain loans from FHA-approved lenders. Although as of mid-2009 many lenders had not yet begun offering these loans, it is possible that more will launch bridge loan programs before the credit expires.
Unlike loans from state and local agencies or nonprofits, the bridge loans provided by private, for-profit FHA-approved lenders must be structured in the form of a personal loan or line of credit. These loans are collateralized by the tax credit and cannot be structured as a second mortgage.
Also, although FHA allows you to use the bridge loan to cover closing costs or to buy down your interest rates, you can put it towards the down payment only after you've covered the 3.5 percent minimum that is required on any FHA loan. Therefore buyers will need to contribute the 3.5 percent minimum down payment themselves or find another funding source to cover it. However, buyers should be aware that seller-funded down-payment programs are not permitted to be used.
HUD provides complete details in Mortgagee Letter on “Using First-Time Homebuyer Tax Credits”. However, since individual FHA-approved lenders will be making the loan, actual loan terms will vary. At a minimum, though, the bridge loan must meet certain restrictions, which are intended to eliminate fraud or ensure that borrowers do not get in over their heads. Restrictions include:
a. Loans can not result in cash back to the borrower b. The amount can’t exceed the amount required for the down payment, closing costs, and prepaid expenses c. Monthly repayments must be included within the qualifying ratios and, when combined with the first mortgage, cannot exceed the borrower’s reasonable ability to pay. d. Payments must be deferred for at least 36 months to not be included in the qualifying ratios. e. There can be no balloon payment required before ten years.

Determining Your First-Time Home Buyer Credit Amount: Form 5405

Sat, 26 Dec 2009 14:02:03 -0600

From the National Association of Realtors (NAR)
Regardless of whether you're applying the first-time home buyer tax credit on your 2008 return or your 2009 return, you'll need to visit the IRS Web site and download Form 5405 (PDF 257KB) . This form has just six lines and takes only a minute to complete.
1. On the first line enter either $8,000 or 10 percent of the home purchase price, whichever is smaller.   Since the national median home price is around $175,200 (March 2009), in most cases the $8,000 will be the smaller of the two. In order for 10 percent of the home price to be smaller, the home purchase price would have to be $79,999 or less.  
2. On the second line enter your adjusted gross income.   You will find your gross adjusted income on line 37 of Form 1040, which you submitted when you filed your 2008 return. The tax credit form actually requires you to note your modified adjusted gross income, but that affects few people, so most will just use their adjusted gross income. 
3. If your adjusted gross income is more than $75,000 (individual) or your income is more than $150,000 (joint) you'll have to complete some additional calculations to determine the credit amount for which you qualify.  Everyone else will simply enter the tax credit amount on Line 6.