Ready To Be Stimulized?

February 15, 2009

capitolIt’s a fine mess when Mr. Language Man has to make up words (“stimulized?”). But it’s a pretty messy bill our elected representatives just passed. I’m sure President O would have just preferred to get $800 bill to spend as he needed, when he needed, on whatever he thinks will work. But, nooooo.

I am sure there will be no shortage of articles and blogs on this subject. Still, since I want you to read my blog, here’s a summary of some of the provisions that might be of interest to you:

hometaxcreditRefundable First-time Home Buyer Credit. Last year, Congress provided taxpayers with a refundable tax credit that was equivalent to an interest-free loan equal to 10 percent of the purchase of a home (up to $7,500) by first-time home buyers. The provision applies to homes purchased on or after April 9, 2008 and before July 1, 2009. Taxpayers receiving this tax credit are currently required to repay any amount received under this provision back to the government over 15 years in equal installments, or, if earlier, when the home is sold. The credit phases out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return). “Refundable” means that even if you don’t owe any taxes at all, or owe less than the amount of the credit, you will receive the difference in cash after filing.

The new bill eliminates the repayment obligation for taxpayers that purchase homes after January 1, 2009, increases the maximum value of the credit to $8,000 ($4,000 for a married person filing separately), and removes the prohibition on financing by mortgage revenue bonds, and extends the availability of the credit for homes purchased before December 1, 2009. The provision would retain the credit recapture if the house is sold within three years of purchase.

Another important change for our area: reinstatement of the increased conforming loan limits for high cost areas. You may recall that our local conforming loan limits rose from $417,000 to $729,750 last year, giving purchasers of higher end homes an important break on interest rates for loan limits up to that amount. At the end of 2008, the temporary limit expired and it dropped to $625,500. This stimulus bill reinstates that $729,750, which should make it easier to get larger loans which now qualify for Fannie, Freddie and possibly FHA guidelines, which translates to lower rates.

newcarSales Tax Deduction for Vehicle Purchases. The bill provides all taxpayers with a deduction for State and local sales and excise taxes paid on the purchase of new cars, light truck, recreational vehicles, and motorcycles through 2009. This deduction is subject to a phase-out for taxpayers with adjusted gross income in excess of $125,000 ($250,000 in the case of a joint return).

energyauditTax Credits for Energy-Efficient Improvements to Existing Homes. The bill would extend the tax credits for improvements to energy-efficient existing homes through 2010. Under current law, individuals are allowed a tax credit equal to ten percent (10%) of the amount paid or incurred by the taxpayer for qualified energy efficiency improvements installed during the taxable year. This tax credit is capped at $50 for any advanced main air circulating fan, $150 for any qualified natural gas, propane, oil furnace or hot water boiler, and $300 for any item of energy-efficient building property. For 2009 and 2010, the bill would increase the amount of the tax credit to thirty percent (30%) of the amount paid or incurred by the taxpayer for qualified energy efficiency improvements during the taxable year. The bill would also eliminate the property-by-property dollar caps on this tax credit and provide an aggregate $1,500 cap on all property qualifying for the credit.

diploma

“American Opportunity” Education Tax Credit. The bill would provide financial assistance for individuals seeking a college education. For 2009 and 2010, the bill would provide taxpayers with a new “American Opportunity” tax credit of up to $2,500 of the cost of tuition and related expenses paid during the taxable year. Under this new tax credit, taxpayers will receive a tax credit based on one hundred percent (100%) of the first $2,000 of tuition and related expenses (including books) paid during the taxable year and twenty-five percent (25%) of the next $2,000 of tuition and related expenses paid during the taxable year. Forty percent (40%) of the credit would be refundable. “Refundable” means that even if you don’t owe any taxes at all, or owe less than the amount of the credit, you will receive up to 40% of the credit in cash after filing. This tax credit will be subject to a phase-out for taxpayers with adjusted gross income in excess of $80,000 ($160,000 for married couples filing jointly).

A fairly decent 19-page PDF summary of the whole bill – THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 – is available from the Senate Finance Committee website.

Kim Hannemann, Real Estate Consultant/Realtor®, Samson Realty
Cell: 703-861-9234 • Fax: 703-896-5055 • Email: KimTheAgent@gmail.com

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If you would like to discuss real estate questions, sell or buy a home in Northern Virginia – including Alexandria, Annandale, Arlington, Burke, Centreville, Chantilly, Clifton, Fairfax, Fairfax Station, Falls Church, Kingstowne, Lorton, McLean, Reston, Springfield, or Vienna – contact Kim today.

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Facts About The $7500 Homebuyer Tax Credit

October 22, 2008

Yes, you can get $7,500 from the federal government to help you buy a house . . . for a limited time.

A tax credit of 10% of the purchase price up to $7,500 is available for any principal residence home purchase between April 9, 2008 and June 30, 2009. You must actually settle (close escrow) within that period. The credit is repayable over 15 years (making it, in effect, an interest free loan).

Eligibility:  Though it is called the “first-time homebuyer” credit, you are eligible if you (or your spouse) have not owned a home as a principal residence the past three years. Owning rental properties or vacation homes do not disqualify you. (Lucky you!)

Income Limits:  Single or Head-of-Household – $75,000 modified adjusted gross income for the maximum credit; up to $95,000 for a partial credit. Married filing jointly – $150,000 for the maximum credit; up to $170,000 for a partial credit.

Tax Years:  If you settle on your purchase in 2008, you must take the credit on your 2008 tax return. If you settle in 2009, you may use the credit on your 2008 or 2009 tax return. Obviously, if your income is expected to be over the limits in one year or the other, this provision helps.

Refundability:  The tax credit is refundable. That means even if you don’t owe any taxes (you lucky dog), you can take the amount of the credit as a tax refund. Woohoo!

Payback:  Normally, the credit will be repaid in 15 equal annual installments beginning with the second tax year after the year the credit is claimed. The repayment amount is included as an additional tax on the taxpayer’s income tax return for that year. For example, if you claim a $7,500 credit on your 2008 return, you will begin paying it back on your 2010 tax return. In this case, $500 will be due each year from 2010 to 2024.

If you sell your home, all remaining annual installments become due on the return for the year of sale. The repayment is limited to the amount of gain on the sale. If there is no gain, or if there is a loss on the sale, the remaining annual installments are forgiven.

If you die (ouch), any remaining annual installments are not due. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount on the same terms. If you transfer your home to your spouse, or, as part of a divorce settlement, to your former spouse, that person is responsible for making all subsequent installment payments.

For more details on the tax credit, see http://www.federalhousingtaxcredit.com/. As always, if your situation is unusual, consult your tax adviser.