TIME IS RUNNING OUT ON THE TAX CREDIT
By Mitch Champagne
I Just got off the phone with a customer, (“John,” I’ll call him) and he casually mentioned that they decided to wait until August to buy their home.
I asked them, “You don’t know that the Tax Credit is running out in April?” Dead silence for a second. He cleared his throat and said, “I haven’t heard anything on it recently, I thought it already ran out.”
Um, no. I politely told him that he had to have his home under contract by April 30th, and close before May 30th.
Ok guys; let me bring you up to date.
The tax credit was extended last November to the dates I mentioned, and also expanded the package.
Qualifying first time home buyers can get up to $8000 tax credit, and previous home owners can get up to $6,500. You have to be what the IRS calls a “Long Time Resident”. There is all kind of rules, but as long as you’ve lived in your previous home, then bought another home, you would qualify for up to $6500 credit. What’s important about the credit is that these credits DO NOT have to be paid back. For example, let us say you’re bought a home for $100,000. You were getting back $100.00 back on your taxes, before the credit. If you’re a first time home buyer, you would get your $100.00 plus ten percent of the purchase price of your home, up to the Max of $8000, so you would get $8100 total.
If you are a long-time resident who bought a home after November 6, 2009, subject to certain criteria, were eligible for a maximum credit of $6,500, (which again, you don’t have to repay)
There’s all kinds of rules if you had a long term home owner, and you remarried, what could you do, so check out the IRS’s link at IRS Web Site
One of the new wrinkles is that even you don’t have to sell the home to qualify for the $6500 Tax Credit.
I see nothing that would stop you from using your old residence as a rental property. (Here’s my disclaimer, check this with your tax advisor and CPA).
One change from last year is that you have to send in documentation that you actually BOUGHT a home in the property time frame, which means that you have to manually send in your tax forms, no filing electronically on this. The IRS says you should a refund in six to eight weeks, some CPA’s I talked to said that some of their customers that bought a home in January still hasn’t gotten their refund check back. So file as soon as you can.
You still would be allowed to file an amended return if need be, so technically you could get your normal refund, and then just wait on the credit check. No one I know has been brave enough to try that, but if any of you guys has had success on this, let me know.
Now some states are doing “loans” so that you can use the money for closing costs, or down payment, but that’s not available in my state, so you will need to check with the Department or Housing Authority in your state.
I would suggest you move fast, as the government is ending a program that has kept the rates down for the last few months.
In about two weeks, at the end of this month, the Federal Reserve will stop buying mortgages from Fannie Mae and Freddie Mac. The Fed has said numerous times that this was a short term measure to help the housing industry, so the rates should rise.
Another factor to bring into play is HUD also enacted legislation in January that has tightened up the market, and Analysts predict that we may see an increase in the required down payment sometime this summer.
Now I was told by some guys, (rather gleefully I might add) that if people are required to put more money down, that would reduce the foreclosures. It wouldn’t, but I could have spent an hour explaining why, so I left it alone. I asked this question, and this shut them up quickly.
“What was the purchase price on your home?” I asked. "$175,000, he answered"
“How much money did you have in the bank when you bought your home?”
“Ten thousand,” he said proudly.
“Ok, under the new rules, you would have had to pay $17,500 plus three percent of the purchase price, because they reduced the closing costs to be paid down to 3%. Then add in your taxes and insurance.”
He turned white. “Over twenty thousand.”
Guys, what I’m saying is this. If you have plans to buy a home in the next two to three years, factor in the tax credit you’ll be losing, plus the additional amount in taxes and other costs you’ll have to pay, which way is going to save you the most money?
If you have any questions, you can email me or go to our website, http://www.networkfundingla.com./ I also have some other links for HUD homes, rural development loans, etc. I’ll write about those later.
Until next time.
Also check out my other blog. Thanks
