On November 6, 2009, President Obama signed a bill to extend the tax credit for first-time homebuyers through June 30, 2010 at a maximum purchase price of $800,000! The bill also opens up opportunities for others who are not buying a home for the first time.
WHO GETS WHAT?
First-time Homebuyers (FTBHs): 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 $8,000.00.
Current Homeowners: 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.
THE NEW DEADLINE
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.
TAX CREDIT VS. TAX DEDUCTION
It’s important to remember that the tax credit is just that… a tax credit. Tax credit is a direct reduction in tax liability, owed by an individual to the Internal Revenue Service (IRS). The benefit of a tax credit is that it’s a dollar-for-dollar tax reduction, rather than a reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done. So, if a first-time homebuyer were to owe $8,000 in income taxes and would qualify for a tax credit of $8,000, she would owe nothing.
Better still, the tax credit is refundable, which means the homebuyer can receive a check for the credit if he or she has little income tax liability. For example, if a first-time homebuyer is eligible for a tax credit of $8,000 but is liable for $4,000 in income tax, she can still receive a check for the remaining $4,000!
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 receive a partial credit. However, 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.
HOW MUCH ARE FTHBs 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 FOR 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.
IF A PARENT (WHO WILL NOT LIVE ON THE PROPERTY) CO-SIGNS 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.
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.
- They do not use the home as their 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.)
As always, if you have any questions about your specific situation or would like to discuss how you may benefit from this program, please call or email us. We will be happy to sit down with you. –Tara and April
A buyer, seller and lender have certain biased interests in any real estate transaction. Escrow is a nonbiased entity that protects all parties. This is why escrow was developed. As a buyer, seller, or lender, you want to be certain all conditions of sale have been met before property and money change hands. Escrow is defined as a procedure in which a third party acts as a stakeholder for both the buyer and the seller, carrying out both parties’ instructions and assuming responsibility for handling all the paperwork and distribution of funds.
The job of the escrow holder is to impartially carry out written instructions given by the principals. This includes receiving funds and documents necessary to comply with those instructions, completing or obtaining required forms, and handling final delivery of all items to the proper parties upon the successful completion of the escrow.
The escrow needs all necessary information to close the transaction. This includes terms of sale, any seller-assisted financing, requests for payment for various services pertinent to escrow, tax statements, fire and other insurance policies, title insurance policies and loan documents, among other miscellaneous items. It is the buyer’s responsibility to make the necessary arrangements for new financing. Finalized documentation of the new loan agreement must be presented into the escrow before the property transfer can take place. Your Realtor can help you identify appropriate lending institutions.
When all instructions in the escrow have been carried out, the closing can take place. This is when all outstanding funds are collected and all fees are paid; such as title insurance premiums, pest inspection/treatment charges, real estate commissions, etc. Under the terms of the escrow instructions, title to the property is then transferred and appropriate title insurance is issued.
- Serve as the liaison to all parties in the transaction
- Act as a neutral “stake-holder”
- Prepare escrow instructions; requests a preliminary title search or title commitment to determine the present condition of title to the property
- Comply with the lender’s requirements as specified in the escrow agreement
- Receive purchase funds from the buyer
- Prepare or secure the deed or other documents related to escrow; prorates taxes, interest, insurance and rents according to instructions
- Secure releases of all contingencies or other conditions required
- Records deeds and any other documents as instructed
- Close escrow when all instructions from buyer and seller have been carried out
- Disburse authorized funds
- Prepare final statement
Escrow does not:
- Offer legal advice
- Negotiate any transaction
- Offer investment advice