The Santa Barbara Groups Real Estate Blog

BREAKING NEWS!

Tax Credit Extension & Expansion is Approved!
Please share this information with your agents.

President Obama has approved a bill for the Housing Tax Credit Expansion and Extension. Here’s what it means:

The $8,000 First-Time Homebuyer Tax Credit is Extended!

· Now, qualified first-time home buyers would receive their $8000 tax credit if they sign a purchase contract by April 30, 2010 and close by June 30, 2010.

· The home purchased must be their primary residence

· Buyer cannot have owned a home during the past three years

· Tax credit is up to 10% of the home value (not to exceed $8,000)

· Annual income caps to qualify for the tax credit have increased ($125K for single filers / $225K for joint filers). Partial tax credit can be granted for incomes up to $145K for single filers / $245K for joint filers.

·

PLUS New $6,500 Tax Credit for Current Home Owners Purchasing a Primary Residence

· Eligible home buyers must have lived in their current home for 5 consecutive years of the past 8 years.

· The new home does not have to cost more than the old home.

· Eligible for homes with purchase agreements written by April 30, 2010 and that close between November 6, 2009 and June 30, 2010

· Annual income caps to qualify for the full tax credit ($125K for single filers / $225K for joint filers). Partial tax credit can be granted for incomes up to $145K for single filers / $245K for joint filers.

When selecting a REALTOR®, you want to find one you are comfortable with, but there are many other factors to consider. Are they committed to being a full-time agent or just part-time? Do they have a proven track record of success? Are they in a productive office with lots of other productive agents to network with and get you a jump on new listings? These are some basics that just about everyone considers when choosing an agent, but there are other important factors that most don’t consider.

One big factor is the agent or brokerage’s reputation within the real estate community. Santa Barbara is a small town and the real estate community is even smaller. If you are working with an agent or brokerage that has burned a lot of bridges, you may come up against some resistance from the listing agent because they are concerned about getting into a deal with the agent you’ve selected. Choose wisely and it can have the opposite effect where the listing agent wants to make a deal. In a competitive market, all things being equal this can be the difference between success and failure.

Be carful of gimmicks and ploys to earn your business. If an agent needs to resort to these tactics, it is usually a way to make up for some sort of inadequacy. You may find yourself doing all the grunt work of scouring the market place yourself, which means you’re missing out on opportunities that never make it to the internet where the general public finds it. A good REALTOR® will be proactive in the search for your home. Meaning, they will network on your behalf asking other agents for up-coming or pocket listing. They will solicit home owners in the locations you desire, searching for a home owner who wants to sell. There are many tricks of the trade that they can bring to the table…and if they are not doing this for you it may be time for a change.

To help you understand what the new tax credit details mean to you, we've put together a concise overview of the new tax credit deadline, income caps, and more.

TAX CREDIT OVERVIEW

Who Gets What?

First-Time Homebuyers (FTHBs): First-time homebuyers (that is, people who have not owned a home within the last three years) may be eligible for the tax credit. The credit for FTHBs is 10% of the purchase price of the home, with a maximum available credit of $8,000

Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

Current Owners: The tax credit program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

What are the New Deadlines?

In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.

What are the Income Caps?

The amount of income someone can earn and qualify for the full amount of the credit has been increased.

Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible

Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.

What is the Maximum Purchase Price?

Qualifying buyers may purchase a property with a maximum sale price of $800,000.

What is a Tax Credit?

A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual's primary residence.

How Much are First-Time Homebuyers (FTHB) Eligible to Receive?

An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10% of the purchase price for a home. If the amount of the home purchased is $75,000, the maximum amount the credit can be is $7,500. If the amount of the home purchased is $100,000, the amount of the credit may not exceed $8,000.

Who is Eligible fort FTHB Tax Credit?

Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible.

This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.

As mentioned above, the tax credit has been expanded so that existing homeowners who have owned and occupied a primary residence for a period of five consecutive years during the last eight years are now eligible for a tax credit of up to $6,500.

How Much are Current Home Owners Eligible to Receive?

The tax credit program includes a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Can Homebuyers Claim the Tax Credit in Advance of Purchasing a Property?

No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.

Can a Taxpayer Claim a Credit if the Property is Purchased from a Seller with Seller Financing and the Seller Retains Title to the Property?

Yes. In situations where the buyer purchases the property, even though the seller retains legal title, the taxpayer may file for the credit. Some examples of this would include a land contract or a contract for deed.

According to the IRS, factors that would demonstrate the ownership of the property would include:

1. Right of possession,

2. Right to obtain legal title upon full payment of the purchase price, 3. Right to construct improvements, 4. Obligation to pay property taxes, 5. Risk of loss, 6. Responsibility to insure the property, and 7. Duty to maintain the property.

Are There Other Restrictions to Taking the FTHB Credit?

Yes. According to the IRS, if any of the following describe a homebuyer's situation, a credit would not be due:

* They buy the home from a close relative. This includes a spouse, parent, grandparent, child or grandchild. (Please see the question below for details regarding purchases from "step-relatives.")

* They do not use the home as your principal residence.

* They sell their home before the end of the year.

* They are a nonresident alien.

* They are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)

* Their home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)

* They owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2005, through July 1, 2008.

Can Homebuyers Purchase a Home from a Step-Relative and Still be Eligible for the Credit?

Yes. As long as the person they buy the home from is not a direct blood relative, the purchase would be allowed.

If a Parent (Who Will Not Live In The Property) Cosigns for a Mortgage, Will their Child Still be Eligible for the Credit?

Yes, provided that the child meets the other requirements for the tax credit.

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