Gratitude!

It’s been a tough year and tough years bring out the challenges in dealing with other people (spouses, co-workers, children, family and friends), with out jobs, with our day-to-day routines and with our sense of entitlement!  The ritual of a day of Thanksgiving is just a reminder that however “challenged” we might have been or might still be, by the economy and/or powers-that-be and/or the consequences of our individual choices, we have much for which to be grateful!  Maybe we can commit to health and well-being, lending a hand when we can and not being too hard on ourselves and everyone else!

Freedom to think, to love, to live.  A chance to be alive and live our life to our fullest potential. A chance to find happiness and joy.  Giving thanks that we have an opportunity to control our gratitude and attitude!!!

Have a Happy Thanksgiving!

All About the Move-Up/Repeat Homebuyer Tax Credit!!

It’s time to celebrate!!!  Not only did the “powers that be” see fit to extend the first-time home buyer (for actual 1st time home buyers OR those that have not owned a home for three years), but they have expanded this credit to include repeat buyers (with certain specific parameters).  Go to http://fabulousportland.com/2009/06/08/free-money-first-time-buyer-credit-update-and-faqs/ for information on the extended “First-Time Home Buyer” Tax Credit and read on for frequently asked questions concerning the NEW extended “Move-up, Move-down, Move-around, Repeat Home Buyer Tax Credit”!!  Here are some facts and figures:

The Worker, Homeownership and Business Assistance Act of 2009 has established a tax credit of up to $6,500 for qualified move-up/repeat home buyers (existing home owners) purchasing a principal residence after November 6, 2009 and on or before April 30, 2010 (or purchased by June 30, 2010 with a binding sales contract signed by April 30, 2010).  The following questions and answers provide basic information about the tax credit.  If you have more specific questions, we strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.

•1)       Who is eligible to claim the $6,500 tax credit?

Qualified move-up or repeat home buyers purchasing any kind of home are eligible to claim this credit.

•2)      What is the definition of a move-up or repeat home buyer?

The law defines a tax credit qualified move-up home buyer (“long-time resident”) as a home owner who has owned and resided in a home for at least five consecutive years of the eight years prior to the purchase date.  For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.  Repeat home buyers do not have to purchase a home that is more expensive than their previous home to qualify for the tax credit.

•3)      How is the amount of the tax credit determined?

The Tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500.  Purchases of home priced about $800,000 are not eligible for the tax credit.

•4)      Are the any income limits for claiming the tax credit?

Yes.  The income limit for single taxpayers is $125,000; the limit is $225,000 for married taxpayers filing a joint return.  The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) above those limits.  The phase-out range for the tax credit program is equal to $20,000.  That is the tax credit amount is reduced to zero for taxpayers with MAGI of more than $145,000 (single) or $245,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.

•5)       What is “modified adjusted gross income”?

Modified adjusted gross income or MAGI is defined by the IRS.  To find it, a taxpayer must first determine “adjusted gross income” or AGI.  AGI is total income for a year minus certain deductions (known as “adjustments” or “above-the-line deductions”), but before itemized deductions from Schedule A or personal exemptions are subtracted.  On Forms 1040 and 1040A, AGI is the last number on page 1 and the first number on page 2 of the form.  For Form 1040-EZ, AGI appears on line 4 (as of 2007).  Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.

•6)      If the modified adjusted gross income (MAGI) is above the limit, can a buyer qualify for any tax credit?

Possibly.  It depends on your income.  Partial credits of less than $6,500 are available for some taxpayers whose MAGI exceeds the phase-out limits.

•7)      What is an example of how the partial tax credit is determined?

Just as an example, assume that a married couple has a modified adjusted gross income of $235,000.  The applicable phase-out to qualify for the tax credit is $225,000, and the couple is $10,000 over this amount.  If you divide $10,000 by the phase-out range of $20,000, the yield is 0.5.  When you subtract 0.5 from 1.0, the result is 0.5.  To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $6,500 by 0.5.  The result is $3,500.

•8)       How does this home buyer credit differ from the tax credit that Congress enacted in July of 2008?  How is this different from than the rules established in early 2009?

The previous tax credits applied only to first-time home buyers and were for different amounts of money.

•9)       How do buyers claim the tax credit?  Is there a special form or application?  Are there documentation requirements?

You can claim the tax credit on your federal income tax return.  Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount online 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns).  No other applications are required, and no pre-approval is necessary.  Home buyers must attach a copy of their HUD-1 settlement form (closing statement) to Form 5405 as proof of the completed purchase.

•10)    What types of homes will qualify or the tax credit?

Any home that will be used as a principal residence will qualify for the credit, provided the home is purchased for a price less than or equal to $800,000.  This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes and houseboats.  The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000/$500,000 capital gain exclusion for principal residences. You cannot purchase a home from, among other family members, your ancestors (parents, grandparents, etc), your lineal descendants (children, grandchildren, etc) or your spouse or your spouse’s family members.

•11)    What does it mean that the tax credit is “refundable”?

The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset.  Typically this involved the government sending the taxpayer a check for a portion or even the entire amount of the refundable tax credit.

•12)    Instead of buying a new home from a home builder, can someone hire a contractor to construct a home on a lot that I already own and still qualify for the tax credit?

Yes.  For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been “purchased” on the date the owner first occupies the house.

•13)    Can a buyer claim the tax credit if the purchase of the home is financed under a mortgage revenue bond (MRB) program?

Yes.  The tax credit can be combined with an MRB home buyer program.

•14)    Can someone claim the tax credit if that is not a US citizen?

Perhaps.  Anyone who is not a nonresident alien (as definite by the IRS) and who has owned and resided in a principal residence in the United States for at least five consecutive years of the eight years prior to the purchase date can claim the tax credit if they meet the income limits.  For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.  The IRS provides a definition of “nonresident alien” in IRS Publication 519.

•15)    Is a tax credit the same as a tax deduction?

No.  A tax credit is a dollar-for-dollar reduction in what the taxpayer owes.  That means that a taxpayer who owes $6,500 in income taxes and who receives a $6,500 tax credit would own nothing to the IRS.

•16)    Is there a way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 or 2010 tax return?

Yes.  Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding.  Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay.  This money can be applied to the downpayment.

•17)    HUD allows “monetization” of the tax credit.  What does that mean?

It means that HUD will allow buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 or 2010 income taxes to receive a refund.  These funds may be used for certain downpayment and closing cost expenses.

•18)    If a buyer is qualified for the tax credit and buys a home in 2009 (or 2010), can they apply the tax credit against 2008 (or 2009) tax returns?

Yes.  The law allows taxpayers to choose to treat qualified home purchases in 2009 (or 2010) as if the purchase occurred on December 31, 2008 (or if in 2010, December 31, 2009). 

•19)    For a home purchased in 2009 or 2010, can the buyer choose whether to treat the purchase as occurring in the prior or present year, depending on which year the credit amount is the largest?

Yes.  If the applicable income phase-out would reduce your home buyer tax credit amount in the present year and a larger credit would be available using the prior year MAGI amounts, then you can choose the year that yields the largest credit amount.

Why Real Estate is NOT a Sales Job!

I am often engaged in conversations about real estate.  Mostly I find myself discussing market conditions, the pricing of homes and neighborhood trends as these aspects of my job affect the state and health of the economy as a whole.  Portland Oregon real estate buyers and sellers are like every other market in the world in that they love speculating, discussing and comparing.  I always love to talk about real estate because I’m fascinated by the business (and all business-related matters).  When asked “how do I like sales?”, I have to answer that my job is not “sales”.  I would love to sell houses (and would be honored to have actual “sales skills”), but I guess I have a fundamental belief that you can’t “sell” a house to someone.  Real Estate is much too large a purchase, too fraught with emotion and even for the investor, too tied to “the bottom line” to simply “sell”.  Webster defines “sell” as “to exchange goods and/or services for money”.  A Real Estate Broker helps people exchange money for goods by providing service.  This service includes meeting that buyer’s sense of urgency, providing consultation, brainstorming, evaluating, offering information and occasionally being the inspiration or “muse” for such an investment.  This job is sometimes “situation management” and often during escrow it is temporarily “crisis management” or for the individuals involved, it is “stress management”.  The fact that I continually see and evaluate homes in an incredible variety of market conditions (the good, the bad and the ugly) and have done so for 25 years should be of consequence to someone who occasionally buys and/or sells.  But, I can’t convince them to buy a house if the right components aren’t there (nor would I want to).  I have influence, information, opinion, financial common-sense, a darn reliable “nose for real estate” but my job is a consulting, not sales!

“GUILT” as a Business Model?

I’ve recently had some business-to-business experiences that make me go “hmmmmmm”???!!!  How does “guilt” work as a business model?  I’ve had some interesting interactions where I was enlisting services to repair items and where I was utilizing services I use daily.  In both instances (and I’m sure I could retrieve many more examples) I either pay monthly for these services or had recently made a large purchase from this business and was asking for a non-purchase-related repair (for which I was willing to pay, of course).  In both cases, the people were extremely nice and accommodating but with that with that “oh-so-subtle” guilt that was reminiscent of some “Saturday Night Live” character that I can’t recall, who always said:  “no…no, don’t worry about me”!  Are you following my drift?  Is anything other than gratitude appropriate in our very trying economy?  I think it is so important as business owners, service providers (and humans on the planet) to be appreciative of the business and services we receive.  Obviously, abusive or insulting customers and clients are not tolerated but requests and job-related activities are what you are hired to provide.  Rolling of the eyes is out of line, but an extreme example.  Subtle exasperation and reiterations of how busy, redundant, unappreciated, obligated you might feel are counter-productive to a successful business owner/service provider-to-client relationship.  I’m writing this as a reminder to me to be delighted and appreciative that someone actually remembers my name and calls for advice, services, confirmations or even to respectively “unload”.  Portland Oregon real estate is struggling alongside many other businesses right now and I understand stress levels are high.  We are all in this together!!