What Are Reasons to Buy, No Matter Whether Interest Rates are Unpredictable?

View towards San Pedro

 One of my most popular posts was on the cost of waiting to buy, posted several years ago. 

And it's still an important reason to make a move -- 

Renting vs. Buying. Waiting for better interest rates can result in long term higher costs. Renting has zero equity growth and offers no tax benefits of homeownership.

It's important to watch the shifts in the local market, and stay ahead of the changes, not behind them where you're playing catch-up.

There's been talk of when the interest rates will drop -- but look at the local market--in spite of interest rates dropping and then rising again, the local single family market and condo market has still risen when comparing October 2023 to October 2024.  The demand is still strong, and that's helping the overall upward surge in prices. Here's a scenario from my post back in 2009, you can substitute in current asking prices and slightly higher interest rate, but the point is still the same:

Let's make an assumption that the prices may still decline 5% more before they start appreciating again. If while a buyer was waiting for the price on a $250,000 to go down 5% to $237,500, and the interest rate goes up one percent from 5.25% to 6.25%, which is entirely possible, the buyer's monthly payments will increase almost $79 per month.

If you're a first time buyer (meaning you haven't owned property in the last years), look into the buyer programs offered through various banks.

If you're holding back because you think interest rates will drop again, or again, just think about how you could be gaining equity, and saving on  tax deductions.  Not every home that's come on the market is selling, and reasons vary, but think again about your goals towards homeownership.

 

Julia Huntsman, REALTOR, Broker | http://www.abodes.realestate | 562-896-2609 | California Lic. #01188996

Are You Taking Your Tax-Deductible Home Improvements?

With tax day approaching, have you checked out these potential tax deductions?

 - Energy Efficient Upgrades, including Energy Efficiency Home Improvement Credit up to $3200; a home energy audit identifying health and safety issues in the home; Energy Star's exterior windows and skylights; biomass stove which has a thermal efficient rating of at least 75% to qualify for the credit.

 - Clean Energy Upgrades, including the Residential Clean Energy Credit, including a solar water heater and geothermal heat pumps.

- Historic Home Upgrades, for the federal Rehabilitation Tax Credit for renovating a historic home, involving such items as pipes, stairs,  posts and beams.

 - Medically Necessary Upgrades, to qualify for a medical expense deduction.

 - Home Office Repairs and Improvements, including wiring, security, dual and triple-pane windows, repairing damaged outlets.

 - Rental Property Repairs, If part of the home is rented out, certain repair expenses may be deducted; repairing water leaks to avoid mold issues; repairing leaky ducts to prevent heat loss and improve air quality.

See the article below for more information:

7 Types of Tax-Deductible Home Improvements

Your tax professional will be able to give you complete advice on these and other possible tax deductions.

 Julia Huntsman, REALTOR, Broker | http://www.abodes.realestate | 562-896-2609 | California Lic. #01188996

House Representatives Introduce Bill to Increase Capital Gains Exclusion

The "More Homes on the Market Act" was introduced on September 29th by Jimmy Panetta (D-CA) and Mike Kelly (R-PA), proposing increases in the capital gain exclusion amounts.  Under this bill, the exclusion amount of the sale of a principal resident for single filers would increase to $500,000 (now $250,000) and to $1 million (now $500,000) for joint filers.

Homes May Benefit from New Capital Gains Bill

This bill would provide tax relief for California homeowners, who are experiencing one of the highest cost markets in the nation, who have been unable or not wanting to move because of the large tax burden that  could result if they sold in the current market.  Senior citizens are more likely to face a larger tax burden since they have on average lived in their homes longer than younger age groups. 

The current capital gains exclusion was passed 25 years ago, with no indexing for inflation, in a different market which was not experiencing such huge equity gains. According to Rep. Panetta, "The current exclusion amount was first set in 1997 and was not indexed to inflation. If it had been indexed for inflation, it would be $461,325 for single filers and $922,650 today," amounts similar to the current proposed exclusion.  The new proposed bill does include indexing for inflation.

The current capital gains rate is  concurrent with fewer homes are on the market, which has contributed to higher demand and higher prices.  The National Association of Realtors estimates that single (95%) and married homeowners (68%) who purchased before 2000 could face capital gains tax if they sold their homes this year.

 

Julia Huntsman, REALTOR, Broker | http://www.juliahuntsman.com | 562-896-2609 | California Lic. #01188996

A Tax Change in 1031 Exchanges Would Ultimately Affect Everyone

IRS Section 1031 Like-Kind Exchanges have existed since 1921 for the purpose of avoiding unfair taxation of ongoing investments in property, and to encourage active reinvestment in property.  While the most common image of doing a 1031 exchange is a transaction of selling one real estate property and exchanging into another real estate investment property, like-kind exchanges result in many types of property transactions. The exchanges are a stimulus to many sectors of the economy, i.e., not only for real estate professionals, but also contractors, title insurers, lenders, equipment dealers/manufacturers, transportation, energy and agriculture.  

The benefits of the current 1031 exchange allows for deferral of capital gains taxes on property sold when it is exchanged into "like-kind" property without cash being taken out (which would invalidate the exchange) and thereby allowing for new investment. Americans pay less for products and services because of this type of reinvestment on products such as single family and multiple family home rentals, public transportation fleets exchanged into new buses, trains, taxis, etc., airlines exchange their planes and rental cars--all of which dealt with through this 1031 exchange system which keeps costs lower for the consumer. Farm machinery, mining equipment, art collectible, boats, oil and gas equipment, and business asset trade-ins are all impacted by 1031 exchanges.

According to Fidelity National Finance Company, 

"The last major tax reform was in 1986. At that time, Congress repealed the ability to take passive tax losses in real estate.  An unintended consequence of this change was the ensuing real estate recession and the demise of the savings & loans industry. This eventually tipped the country into the recession of the early 90’s.  Section 1031 is bigger than passive losses. In some U.S. markets, real estate brokers claim that 1031 Exchanges touch at least 45% of the real estate investment transactions."

                                                                                * * *

"Ernst & Young, LLP released a macro-economic study on the impact of repealing or limiting 1031 exchanges in 2015 that quantified that the US economy would actually contract if Section 1031 was repealed or limited, finding that GDP would be reduced by approximately $8.1 billion per year."

Elimination, restriction or changes that would effectively block 1031 exchanges in any contemplated "tax reform" could negatively affect much of the current American economy.  The 1031 exchange is not only important on the large business economy scale, but is one of the few tools small business owners and small apartment owners have to maintain their capital investments over time.

 See more at these sites, which also include ways to contact your Congressional representative:
10 Reasons for a 1031 Exchange
Fidelity National Finance Company 
1031 Corp
Commercial Observer

How Proposed Tax Changes Could Affect You, the Homeowner

On September 27, proposed tax reform information was released by Republican leaders known as the Big 6* which outlines the elimination of certain tax deductions while doubling the standard tax deduction and elimination personal and dependency exemptions.  The National Association of Realtors 'believes the result would all but nullify the incentive to purchase a home for most, amounting to a de facto tax increase on homeowners, putting home values across the country at risk and ensuring that only the top 5 percent of Americans have the opportunity to benefit from the mortgage interest deduction."
In other words, should such tax reform become reality, it's not good for homeowners.

• It recommends a "backdoor elimination" of the mortgage interest deduction for all except the top 5% who would still be able to itemize their deductions.
• The total effect would be a tax increase on most Americans due to a combined loss of state and local tax deductions
• Lost incentive to purchase a home could result in overall loss of home values.
• It could strongly affect new homebuyers and older Americans who rely on the equity in their homes for retirement. 

The tax code has historically favored homeownership but these proposals that would limit tax deductability of the mortgage interest deduction and property taxes would reverse that support. An analysis by PricewaterhouseCoopers states that "values could fall in the short run by more than 10 percent if a Blueprint-like tax reform plan were enacted. The drop could be even larger in high-cost areas.   It may take years for home values to rebound from such a significant decrease."  See a summary here.

The National Association of Realtors believes that repealing such deductions would in effect cause double taxation on the same income.  For further information go to the NAR site.

The discussion about tax reform has been present for much of 2017. To preserve your homeowner deductions, contact your Congressional representative.


*House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell, Treasury Secretary Steve Mnuchin, National Economic Council Director Gary Cohn, Senate Finance Committee Chairman Orrin Hatch, and House Ways and Means Committee Chairman Kevin Brady

Are You Taking All Your Tax Deductions?

It's never too early to review what the tax advantages are for you as a homeowner or a future homeowner.

Homeownership comes with many benefits, including some sizeable tax deductions.

For more specific information, ask your accountant or tax professional about whether these deductions apply to you. Also, more information is available in the many publication published on the IRS and California FTB web sites.

Deductions

• Mortgage interest – You may be able to deduct all interest paid on your mortgage.
• Mortgage insurance – Mortgage insurance on government-backed mortgages may be deductible in the same way as mortgage interest.
• Local property tax – You may deduct property taxes paid to the county tax collector.
• Points & prepaid interest – Points and charges paid to obtain a mortgage for a home purchase or improvements may be deductible.
• Home office deduction – The portion of your home used exclusively and regularly as an office space is deductible from your taxable income.
• Green energy tax credit – Installation of renewable energy systems may be eligible for deductions up to 30%.
• Moving expenses – If you moved more than 50 miles for a job opportunity, you may be eligible for moving deductions.
• Renovation/demolition salvage – If you donated construction materials or demolition waste to a qualified charity, you may deduct the value of the donated materials.
• Improvements added to basis – Qualifying improvements added to your cost basis may reduce your capital gains tax owed if you later sell your home.
• Withholding credit for investors – If you purchased or sold an income property and 3.33% was withheld, check out the Franchise Tax Board’s withholding criteria to ensure you receive credits.

Looking to buy or sell your home? Call me today or go to my website at www.juliahuntsman.com.

Some Types of Taxes When Selling Real Estate, and a 1031 Exchange May Save Money

There are certain differences between owner-occupied property and investor property (non-owner occupied) when it comes to selling--and buying, but here we are concerned more with selling.

Some owners who have rented out their residences and moved on to another location are surprised to find out when it comes time to sell that they may have lost their capital gains exclusion ($250,000, or $500,000 for married owners). On top of that, they may be paying the State of California 3-1/3% withholding tax upfront at the close of escrow.  Additionally, if you took depreciation on an income property you now own as an investor, you will have additional reckoning at tax time.  Please see IRS Publication 523 for specific information.

Depreciation is a method for matching the costs of acquiring property over the properties’ estimated
economic life.  The IRS requires that most properties be depreciated via the ‘straight-line’ depreciation method.  Using the straight-line method, residential income properties are depreciated over 27.5 years.  Commercial properties are depreciated over 39 years.

Depreciation Calculations
Land is not depreciable.  In order to properly calculate depreciation, the value of land must be excluded. For example, a $1MM duplex with land worth $300,000 has $700,000 worth of depreciable real estate.  Using the straight-line depreciation method, the annual depreciation amount is approximately $25,500 ($700,000/27.5)  NOTE: The IRS will typically not challenge the assessment of the land value if it is reasonable. A tax advisor, attorney or real estate agent should be able to provide guidance for what is reasonable based on the location and type of land.

Depreciation Benefits
Depreciation is an ‘intangible expense’ that will reduce the reportable taxable income from the property, and means less tax to the IRS.
Here’s how it works:
The yearly rental income from the example duplex is $36,000. At the end of the year, this will have to
be reported to the IRS. However, the IRS does not tax the entire $36,000. The taxable income from the property is calculated as follows:

• Rental Income
• (Expenses)
• (Depreciation)
• Taxable Rental Income

If the expenses of operating and managing the duplex are $5,000 for the year, the taxable rental
income is calculated as follows:

• Rental Income $36,000
• (Expenses) ($5,000)
• (Depreciation) ($25,500)
• Taxable Rental Income $5,500

NOTE: Please always seek the guidance of a tax advisor. Capital gains may or may not apply depending on how long you lived in the property, and depreciation items may be calculated on different schedules. To completely avoid last minute upsets and lose your deal, it's important to obtain your information before you sell--I once represented a buyer on a very nice fourplex where the seller finally obtained tax guidance after we opened escrow, only to be shocked by how much recapture tax had to be paid to the IRS since the property had been owned long enough to be fully depreciated.  The seller cancelled escrow, much to the buyer's disappointment.

Depreciation Tax
Upon the sale of an investment property, the IRS requires the payment of a depreciation re
tax, which means you have to "pay back" the money you were entitled to take previously. The tax rate is currently set at 25%. In the example above, if the duplex was owned for 10 years, the entire depreciation taken on the property would amount to $255,000 ($25,500 x 10).  The IRS requires a recapture tax on that entire amount. Hence, the sale of the duplex will result in a $63,750 depreciation recapture tax (255,000 x 25%). This is in addition to state and federal capital gains taxes. The depreciation recapture tax as well as any associated capital gains taxes can be deferred in full via a 1031 Exchange.

Conclusion
Of all the benefits of owning real estate, depreciation may be one of the most important. The tax advantage depreciation offers is powerful. The IRS will always assume that depreciation is taken and
will hold an investor liable for the deprecation recapture tax – even if the investor failed to take advantage of the depreciation. Bottom line: make sure you are taking advantage of this powerful tool.
Thanks to Asset Exchange Company for this sample.

Energy-Efficiency Upgrades and Residential Energy Tax Credits for 2014

If you made your home more energy efficient in 2014, you might qualify for the residential energy tax credit.

Tax credits are especially valuable because they let you offset what you owe the IRS dollar for dollar for up to 10% of the amount you spent on certain home energy-efficiency upgrades. 

The credit carries a lifetime cap of $500 (less for some products), so if you’ve used it in years past, you’ll have to subtract prior tax credits from that $500 limit. Lucky for you, there’s no cap on how much you’ll save on utility bills thanks to your energy-efficiency upgrades.

Among the upgrades that might qualify for the credit:

• Biomass stoves

• Heating, ventilation, and air conditioning

• Insulation

• Roofs (metal and asphalt)

• Water heaters (non-solar)

• Windows, doors, and skylights

To claim the credit, file IRS Form 5695 with your return, the 2014 version may be found at their website with the instructions.

Governor Jerry Brown Signs Bill to Stop Tax on Loan Modifications

If the principal on your mortgage was reduced in a loan modification, a new law may lower your taxes. Governor Jerry Brown recently signed AB 1393 (Perea), legislation that will prevent homeowners from being charged state income tax when they’ve had a mortgage loan modified to reduce the principal. Under current law, the forgiven debt created by a reduction in principal as a result of a loan modification isn’t subject to federal income tax, but is currently taxable under state law. The law will become effective immediately and is retroactive to January 1, 2014. This is great news for homeowners.

Benefits of the New (and Extended) Tax Laws for 2013

Much has been written about the last-minute passage of the "fiscal cliff" issues by the federal government.  But, remember there are state level issues as well, some of which are still being worked on in California., specifically SB 30.

In 2007, the new law provided, for five years, incentives for sellers to accept short sales by, in many instances, forgiving taxes that would have been due for the forgiven debt amount.

Previously, when a lender forgave a portion of borrower debt, the forgiven amount was, in many instances, considered taxable income for the borrower.

This tax incentive for sellers to participate in short sales was just extended by Congress for another year, expiring January 1, 2014; however, California's exemption under the Mortgage Forgiveness Debt Relief Act expired at the end of 2012, and currently forgiven mortgage debt is taxable state income.  SB 30 (Calderon) has been introduced, and if and when passed by the California legislature, it will make California conform to federal law, and will be retroactive to January 1, 2013.

Not all debt is forgiven in every instance. Sellers should check with their tax consultant for exceptions. For example: Maximum amount that can be forgiven is $2,000,000. To be forgiven, the debt must have been used to buy, build or substantially improve their principal residence

Other housing-related provisions brought into effect with the new laws are:

• A 10% tax credit up to $500 for homeowners' energy improvements to an existing home, and is retroactive for 2012.
• Capital gains rates remain at 15% for incomes under $400,000 (individual) and $450,000 (joint); above those income levels gains will be taxed at 20%.  On sale of principal residence, the gains rate remains at $250,000 (individual) and $500,000 (joint).
• An 2011 expired tax deduction for mortgage insurance premiums (MIP and PMI on loans) has been restored and is retroactive through 2012.
• The new "Pease Limitations", per California Association of Realtors, are at "$300,000 for married taxpayers filing jointly and $250,000 for single taxpayers (i.e., a married couple with an AGI of $400,000 would be $100,000 over the threshold; the couple’s deductions would be reduced by $3,000 which is 3% of $100,000). No matter how high a taxpayer's AGI, the Pease reduction cannot exceed 20 percent of the amount of itemized deductions otherwise allowable for the year." These were named after Ohio Congressman Don Pease and were first enacted in 1990.
• The first $5 million dollars in individual estates and $10 million for family estates are now exempt from the estate tax. After that, the rate will be 40%, up from 35%. The exemption amounts are indexed for inflation.
• More at http://www.toptennewhomecommunities.com/blog/fiscal-cliff-bill-addresses-some-key-housing-issues/

The Mortgage Debt Relief Act Is Hanging in the Balance For Long Beach Area Owners

In 2007, the Mortgage Debt Relief Act was passed in an attempt to help the millions of homeowners who, due to the housing crisis and economic crash, suddenly found themselves in danger of losing their home to foreclosure.

The act has helped many California distressed homeowners find solutions to avoid foreclosure and opened up options to them that were previously unavailable.  This Act removed the tax responsibility on forgiven mortgage debt and allowed short sale sellers and owners of foreclosed homes to recover more quickly from selling their principal residence as a distressed property.  

 

Although there is less coverage in the media about homeowners who owe more than their home is worth, those owners make up about 22% of the nation's homeowners.

The Mortgage Debt Relief Act, however, was only intended to be a temporary solution and is now set to expire at the end of 2012.  This law has already been extended twice.  There is a bill in Congress that would extend it again, but it is unclear if it will pass. For distressed homeowners, this means that time is limited to take advantage of this program.

Time is running out. But there is still a chance to change your financial direction and avoid foreclosure.  Call today to find out the current process for listing and selling your property as a short sale--the banks have streamlined their process greatly compared to the past, and limited inventory has made buyers more willing to wait for the short sale process.

Just one more thing: please don't think that if this law is not extended, that a short sale is not possible because that is not true.  What it means is that the tax forgiveness period will be over, which will impact both short sales and foreclosed properties.  Please remember that with a short sale, with the vast majority of properties, there is less of a loss for the bank to accept than when it is not sold and goes straight into foreclosure. Either way, the homeowner will be responsible for this difference between the bank's loss and the mortgage amount, if the MDRA is not extended.

 

Contact me, Julia Huntsman, CDPE, at 562-896-2609 and see more short sale information at www.juliahuntsman.com - Help for Homeowners.

If You Have Investment Property, Here Are Taxing Issues

It's tax time, and a lot of people are hitting my site to find out property tax rates. (As I've said before, in California, figure approximately 1.25% of the selling price for the initial property taxes. For more information on that, go to your local county tax assessor's site.) And, the lower federal income tax rates that were set to expire on December 31, 2011, have been extended for another two years.

Tax deductions which owners of investment property could be dealing with include:

Mortgage Interest – The interest owed on a loan used to acquire or improve an investment property is a tax deductible expense. In addition, interest payments on credit cards for goods or services used in rental activity is also deductible.


Depreciation – Residential income property can be depreciated over 27.5 years; commercial 39 years. Depreciation is often the largest deduction a real estate investor can take.

Repairs - The cost of repairs to rental property are fully deductible in the year in which they are incurred. The repairs must be ordinary, necessary, and reasonable in amount. Some examples of deductible repairs include painting and fixing broken fixtures. Replacing a roof would not be considered a ‘repair’, but rather a capital improvement and the cost associated with replacing the roof would increase the basis of the property.

Travel Expenses - Property owners are entitled to deduct the costs associated with traveling to and from the rental property. The drive to a property to deal with a tenant complaint would qualify as a tax deductible expense. Likewise, flying to Hawaii to repaint a rental property would also qualify as a tax deductible expense. For overnight travel, you can deduct your airfare, hotel bills, meals, and other expenses. If you plan your trip carefully, you can even mix landlord business with pleasure and still take a deduction. Please note however that IRS auditors closely scrutinize deductions for overnight travel. To stay within the law and avoid unwanted attention from the IRS always properly document long distance travel expenses.

Home Office – Landlords may be able to deduct home office expenses provided certain minimum requirements are met.

Employee, Independent Contractor and Professional Services Expenses – Fees paid to gardeners, painters, attorneys, accountants, property management companies, real estate investment advisors, and other professionals can be deducted as operating expenses as long as the fees are paid for work related to the rental activity.

Advertising – Any advertising costs associated with marketing the property for rent or for sale can be deducted.

Insurance – Insurance premiums can be deducted for almost any insurance policy related to the rental property. This includes, fire, theft, and flood insurance for rental property, as well as landlord liability insurance.

Vacant Property -If the property is vacant either because the property is up for sale or is waiting to be re-tenanted, the owner may still be able to deduct all ordinary and necessary expenses (including depreciation) for managing, conserving and maintaining the property while the property is vacant.
 (Courtesy of Leonard Spoto, http://www.ax1031.com/)

Contact your tax advisor for complete professional advice.

Buying a Home is An Opportunity to Leverage

Often when prospective buyer(s) think about making the change from being a renter to a homeowner, they add up all their monthly costs as a renter and then compare it to their monthly costs as a homeowner. If the amount as a homeowner is more, then they get discouraged and assume that buying is not a good deal for them. But instead of focusing on only their current role as a renter, they should go further and realize their role, and their opportunity, as an homebuyer/investor for their future:

Some people define leverage as using other people's money but another way to describe it is when a small down payment controls a large asset by placing a high loan-to-value mortgage on it. There are not many investments that allow leverage but homes certainly do and especially with FHA or VA loans.

Let's assume a couple or single buyer has the down payment and good credit that would allow them to buy a home. We'll compare some alternatives to see where their best outcome may be.

If a person put $6125 in a certificate of deposit (CD) that earned 2% annually, it would be worth $6,762 in five years and the profit would be taxed as ordinary income. If a person could take a little more risk and pick the right stock, the $6,125 might grow to $7,817 and the profit would be taxed at  the more favorable long-term capital gains rates if they held the stock for more than one year.

On the other hand, if the $6,125 were used as a down payment for a $175,000 home (possible with an FHA purchase) that went up in value only 1% per year, the equity would grow to $30,575 in the same five year period of time based on appreciation and amortization. In most cases, the gains on principal residences are excluded from income tax subject to limits. (Single person usually has an IRS $250,000 capital gains exemption and married couple usually has an IRS $500,000 capital gains exemption.)

The difference is dramatic and is one more reason that buyers should be taking advantage of the great selection of homes, the lower prices and incredibly low interest rates to fix their cost of housing for years to come. There may never be a better time to buy a home than now.

For more information on this, a rent vs. buy analysis may be obtained. Or please contact me through http://www.juliahuntsman.com/

Inspired by Pat Zaby

Time Is Moving Along for First Time and Repeat Buyers

The Southern California Home Buyer's Fair will be taking place March 13 and 14 at the Los Angeles Convention Center. It's a great start for the keys to homeownership, if you're free to go that weekend. However, the $8000 tax credit for 1st time buyers will be ending in April 2010, and will be extended only to complete your escrow if you have signed a contract at that point in time. Per the IRS site, the credit

• Applies only to homes used as a taxpayer's principal residence.


• Reduces a taxpayer's tax bill or increases his or her refund, dollar for dollar.


• Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.

And, although this new proposal by Gov. Schwarzenegger is still "up in the air", to continue encouraging homeownership among Californians, the Governor will propose to extend and expand the $10,000 homebuyer tax credit to include the purchase of existing homes in addition to new residences for first-time homebuyers. The buyer must not be a dependant and must be purchasing a home that does not belong to a relative. Under the Governor’s proposal, the Franchise Tax Board will extend the credit to buyers who purchase homes until $200 million dollars in tax credits have been granted.

PLEASE, if you're thinking of buying this year, do not assume that the $8000 tax credit will once again be extended as it was at the end of 2009. Many Congressional members were not in favor of this extension for various reasons. Californians may benefit from the additional proposal, however, that is unknown as of yet.

If you want to buy, start taking action now. If you need loan options, I will be happy to refer you. Remember, for purposes of these programs, a 1st time buyer is one who has not owned property in the last 3 years.

Please contact me if you are ready to proceed--remember, rates are still low.

For more information on buyer programs, go to http://www.juliahuntsman.com/.

Extension of $8000 Tax Credit--Now Also $6500 for Repeat Buyers

Update November 6th: This bill is now signed into law. The extension for this credit is until April 30, 2010, with a 60-day extension if a contract is entered into before that. First time buyers, this is your big chance! Repeat buyers who currently own now have a great incentive also!

The United States Senate passed a resolution on October 29th to extend the $8,000 first-time homebuyer tax credit originally set to expire on November 30. Once the Senate officially votes on the bill it will move to the House of Representatives, which strongly supports the extension. The Obama administration has also signaled its strong support for an extension of the tax credit.
Aside from the first-time homebuyer credit, the new plan would offer a $6,500 credit for repeat or move-up homebuyers who have lived in their primary residence for five years or more. The tax credits would be available to buyers who sign purchase agreements on a new or existing principal residence, not over a selling price of $800,000, between December 1, 2009 and April 30, 2010, and who will close escrow before June 30, 2010.

The income limits for all buyers would be increased from the present levels to higher incomes of $125,000 per year for individuals and $225,000 for married couples.
The first-time homebuyer credit is also available to those who have not owned a home in the previous three years. The credit does not have to be repaid unless the home is sold or ceases to be the primary residence within three years.
According to the Treasury Department, more than 1.2 million borrowers have claimed $8.5 billion of the $13.6 billion set aside for the first-time homebuyer tax credit.
A California Association of Realtors survey of first-time home buyers shows that 40 percent would not have purchased a home without the tax credit.

$8,000 Tax Credit is Once Again a Help With Costs for 1st Time Buyers

There has been much confusion in the past several weeks about using the credit for a down payment, as HUD announced a tax credit but then rescinded the offer.

Now, the latest information from HUD (May 29th) is now that the $8000 tax credit for FHA borrowers "may not be used to meet the 3.5% minimum downpayment, but may be used as additional downpayment, buying down of interest rate, or other closing costs." The HUD credit may not be used in place of your 3.5% down payment, but you may use it to cover closing costs, or as a loan through specified programs set up by lenders.

This is a great opportunity for first time buyers to buy real estate in the Long Beach area with additional some financial assistance!

Give me a call to learn how to utilize this program to your best advantage!

Back to Reality--No Using the $8000 Tax Credit for Down Payment

This has already been addressed in many other quarters, but just for the record, I'm including it here: Apparently, the HUD letter ML 09-15 has been rescinded as of last Thursday morning because it violated a federal law effective as of October 1, 2008, and now there's just a big blank space on NAR's site where the announcement used to be. The fact is, FHA loans do not allow for down payments that in themselves are loans, but may allow for gift down payments from certain sources as spelled out in FHA guidelines.

So the $8000 credit-as-down-payment is NOT going forward. And, for the ML 09-15 proposal to occur, there would have to be in place:

--State agencies approved WITH MONEY for the downpayment
A change to the HUD guidelines on the timeframe that is allowable for a loan….currently must be amortized over 10 years with no balloon.
--A change to the IRS guidelines allowing your refund to be assigned to a state or non-profit entity.
Source - Tara Ryan, Primacy Mortgage

In the meantime Buyers, you have until December 1, 2009 to otherwise utilize the $8000 tax credit.

California's New Home Tax Credit for $10,000

Announcement from California Association of Realtors: (NOTE: As of this morning, well over half of the $100,000,000 funds for a new home purchase are now committed, although not paid out. Buyer must close escrow, and then apply with 7 days after close of escrow.)

"This tax credit is available for qualified buyers who on or after March 1, 2009, and before March 1, 2010, purchase a qualified principal residence that has never been occupied. The buyer must reside in the new home for a minimum of two years immediately following the purchase date.

"The FTB began accepting applications for allocation of credit by fax only (916.845.9754), on March 1, 2009. They began processing the applications on a first-come, first-served basis, on May 1, 2009. The processing delay was necessary to allow them time to develop a system to capture and verify the application information, allocate the credits, and send the credit allocation letters. It will take at least a few weeks to process all the applications they received and mail credit allocation letters. Please be patient and do not send applications more than one time.
California allocated $100,000,000 for this tax credit. Buyers must apply for credit allocation from the FTB. They will review applications and allocate credit on a first-come, first-served basis. Once $100,000,000 has been allocated, the tax credit will no longer be available. They expect to report total credit allocations allowed beginning May 15. Until then, they will continue to report data on applications received. "

Doesn't the fact that over half the funds are now committed since March 1 show the increase in buyer purchases?

First Time Buyers: $8,000 Credit May be Used as an FHA Loan Down Payment

First-time homebuyers: Get the fast road to your $8,000 tax credit. Shaun Donovan, secretary of Housing and Urban Development (HUD) announced on May 12 that Federal Housing Administration (FHA) will allow its FHA lenders to allow homeowners to use the $8,000 tax credit as a down payment.

Secretary Donovan said.

'We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a downpayment.' According to Donovan, the FHA’s approved lenders will be permitted to “monetize” the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately at the closing table.

Rather than waiting for refunds after the closing, funds will be available at the closing. A second mortgage will be filed and repayment terms will vary. It is important to keep the home as a primary residence for at least 3 years.

Q&A summary of other requirements for this credit:

Who Qualifies?
First-time home buyers who purchase homes between January 1, 2009 and December 1, 2009.
To qualify as a "first-time home buyer" the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase.

Which Properties Are Eligible?
The 2009 First-Time Home Buyer Tax Credit may be applied to primary residences, including: single-family homes, condos, townhomes, and co-ops.

How Much Will the Credit Be?
The maximum allowable credit for home buyers is $8,000. Each home buyer's tax credit is determined by two factors:
a) The price of the home-the credit is equal to 10% of the purchase price of the home, up to $8,000.
b) The buyer's income-single buyers with incomes up to $75,000 and married couples with incomes up to $150,000-may receive the maximum tax credit.

If the Buyer(s)' Income Exceeds These Limits, Can He/She Still Get a Credit?
Yes, some buyers may still be eligible for the credit.The credit decreases for buyers who earn between $75,000 and $95,000 for single buyers and between $150,000 and $170,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income-over $95,000 for singles and over $170,000 for couples are not eligible for the credit.

Will the Tax Credit Need to Be Repaid?
No. The buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during the three-year period, the credit will be recouped on the sale.

More Demand, More Sales--More Sales, More Buyers and Sellers

In spite of the billions of dollars spent and given away to Freddie Mac, Fannie Mae plus numerous other banks and institutions, in spite of the many government loan modification programs and federal homeowner help programs, loan streamlining programs ... but so many buyers are still reluctant to buy. Yes, there are more limitations on types of loans available, basically buyers have a choice between 3.5% down payment (FHA), 10% and 20%+ down payment loans (conventional). There are some first time buyer programs, there are still VA loans, but most buyers are going to fit in the middle of the distribution curve on the first 3 types of opportunities.

There needs to be even more incentive(s) if there is to be a return to a real estate market where there are properties closing escrow with move-up buyers. Why, especially in California which is still a higher-priced market than other states, should only first-time buyers under a certain income level be eligible for the $8000 tax credit? Why not make it available to anyone who purchases a home? or an investment property? I've been meeting people lately who have certain assets, sense that the bottom of the market may be getting closer but they're still unsure, and this credit might give them the incentive to finally make the move off the fence.



Another suggestion has been to put a moratorium on the capital gains tax for future sales of residential property purchased in 2009 and 2010 which might encourage these capable but indecisive buyers to finally make a move into the market. Yes, a strong increase in sales has been occuring in 2009, but it's also at the lower end of the market. Think of the buyer who might otherwise put an offer on a high end property if these other incentives were in place.