Auld Lang Syne – Happy New Year!

JANUARY 2011 PORTLAND METRO REAL ESTATE UPDATE!

HAPPY NEW YEAR!!!  Well, with 2010 tucked away and safely behind us we can look forward to a new year, new beginnings and (perhaps) some continuing positive economic indicators.  When studying this month’s “Market Action” (compiled by the Realtor’s Multiple Listing Service), the first thing that strikes me is that we certainly ended the year with less inventory than we began with in January 2010.  We started the year with 12.6 months worth of homes to sell and finished the year with 7.9 months of inventory!  The lowest amount in the last three years was 7 months in May of 2010 (probably a result of the home-buyer tax credit).  The momentum I mentioned feeling in my last update was realized with the highest monthly level of activity in December since June.  For 2010, the average sale price dropped 2.7% compared to 2009.  However, economists continue to agree that it will be a long-haul out of our present slump.  I recently grilled an appraiser at one of my listings that had sold as to what he saw happening in the real estate market.  He said he is seeing the banks “delay, then pray”.  When I inquired as to what that meant, he said they are delaying foreclosures (so they’re not “on the books”) and praying (that they can eventually, slowly unload the foreclosure inventory).  If we are waiting to make a change, we might need to revisit our goals and embrace a new normal (in other words, whatever changes we need to make might be based on a new set of assumptions).  In other, OTHER words, if you’re waiting to sell till the market “returns” (whatever that means), have at least a 5-year timeline in mind! 

BUYERS:  What does this mean for buyers?  If you were lucky or smart enough to take advantage of the diminished pricing, low interest rates AND the home buyer tax credit this year, you may actually be excited about doing your taxes.  Remember to request your final HUD-1 from your Real Estate Broker so your tax accountant can make sure and give you every possible legal write-off.  Don’t delay getting your taxes organized, if the 2010 tax filings are anything like the 2009 filings, taxpayers claiming either the first time home buyer credit or the credit for repeat home buyers can expect delays in getting their refund.  For new buyers, it is still very much a “buyer’s market”!  There are FHA loans available with as little as 3.5% down and there are other creative ideas for getting into a new home. The “Bloomberg Business Week” rated Portland the #1 large metro area for long-term real estate value!  Don’t forget about the extended tax credit for members of the military, Intelligence and Foreign Service who have served outside of the U.S. for at least 90 days between January 1, 2009 and May 1, 2010

SELLERS:  What does this mean for sellers?  Well, it means it should not take as long to sell your house, IF it’s priced correctly for your market and staged to be minimalist and a “clean slate” for the new buyer to imagine his/her life.  However, I suspect that inventory will increase as the Spring approaches and that could change.  And, if my appraiser is correct there will still be more foreclosure and short-sale inventory with which to contend.  Rick Sharga, a senior vice President at RealtyTrac, which tracks notices for defaults, scheduled home auctions and home repossessions, believes that 2011 will be the peak!  Pricing is difficult in this market and sometimes it’s a process to find that “sweet spot” in the market.  Staging is something I can handle very well, but it sometimes behooves the seller to bring in professional help.

INVESTORS:  What does this mean for investors?  There is not a huge multiplex inventory (which generally will pencil out better than a single family) but once you identify a good property, interest rates for investors are still very good (low-to-mid 5’s).  You will get the best interest rate with 30% down but you can get into the market with as little as 10% down with good credit and cash reserves.  Rents are going up in many markets and owning rental property can be very attractive.  Even if you run the numbers on a piece of property with no appreciation, amortization alone will grow equity.  You can allow the renters to pay off your mortgage!  Passive-Income producing real estate can be a great asset to a diversified financial portfolio.  As part of your overall tax strategy, don’t forget the 1031 Exchange (capital gains tax deferral) when you sell!

Okay, you may (or may not) remember (or care) about my last year’s article on “Death and Taxes“.  Well, since they are both seemingly inevitable,  I though I’d revisit.  If you’ve heard the term “1031 Tax Deferred Exchange” it could be because you’ve considered investing in income property!  Aside from giving the investor a tremendous increase in purchasing power and a chance to defer taxes on capital gains from the sale of real estate, a 1031 exchange provides the benefits of leverage, consolidation/diversification and increased case flow/income!

Investors can take advantage of the 1031 Tax Deferred Exchange to acquire a more valuable investment property.  If the investor utilizes the money they would have paid to the IRS in taxes, they can increase their down payment and acquire a more expensive replacement property.

An investor may also exchange one property for several others, consolidate multiple properties into one and acquire property anywhere within the US.  For example, an investor could exchange two duplexes for a retail strip mall or take advantage of a new growth area by exchanging one property in California for three in Oregon, etc.

Investors that have enjoyed the long-term benefits of several rental properties may have accrued considerable equity and want to exchange to one large property.  You could also increase cash flow if you are holding a vacant piece of land with no cash flow or depreciation benefits by exchanging it for a commercial building or a duplex/multiplex that cash flows. 

Also, check out last year’s list of tax publications.

If you were lucky or smart enough to take advantage of the diminished pricing, low interest rates AND the home buyer tax credit this year, you may actually be excited about doing your taxes.  Remember to request your final HUD-1 from your Real Estate Broker so your tax accountant can make sure and give you every possible legal write-off.  

You are probably aware that interest on the qualifying mortgage and property taxes are deductible.  However, sometimes other legitimate expenses are overlooked.  Points paid to secure the mortgage whether paid by the buyer or the seller on behalf of the buyer are generally accepted as interest and deductible.  Interest to the end of the month shown on the closing statement is qualified interest and it may not show on the year end statement supplied by the lender.  A prepayment penalty to retire a mortgage or  points not previously deducted may be deducted on the return in the year they were paid.

To take advantage of the home buyer tax credit, it would be wise to get organized early.  If the 2010 tax filings are anything like the 2009 filings, taxpayers claiming either the first time home buyer credit or the credit for repeat home buyers can expect delays in getting their refund.  Taxpayers will need to submit a paper form along with the proper documentation, which slow the process down.  In addition, the IRS will be carefully watching for fraud.  So, collect all your paperwork now so you can file as soon as possible.  Depending on which credit you are filing for, you’ll need your HUD-1 statement at minimum, and possibly 5 years worth of 1098 forms.  Visit www.irs.gov or check with your tax preparer.

Also, the tax deal that President Obama made included some compromises that benefited the homeowner!  Such as deductions for private mortgage insurance.  The agreement extends through 2011 which allows home owners to deduct mortgage insurance premiums.  To qualify for the full deduction, homeowners must have an adjusted gross income (AGI) of less than $100,000.  Tax payers with an AGI of $100,000 to $109,000 can claim a partial deduction.  Borrowers can’t deduct mortgage premiums on home loans that closed before 2007.

And, don’t forget those tax credits for energy-efficient home improvements!!  Home owners who installed insulation, new windows or other energy-saving improvements in 2010 are eligible for a tax credit worth 30% of the cost up to a lifetime maximum of $1,500.  Improvements had to be bought and installed by 12/21/10.  Those who delayed improvements to 2011 still get a tax credit, but it is capped at $500.  See last year’s article on “Death and Taxes”. 

Altos Research indicates that we are dealing with a “bear real estate market” since the end of the home-buyer tax credits.  Of course, all they would have had to do is ask existing home-sellers or real estate agents to confirm this information!  Buyers are out there but are waiting for “bargains only” and sellers must acknowledge this reality.  Raw inventory in Altos’ 20-city composite, which includes the same 20 cities in the Case-Shiller Home Price Index, was rising past 575,000 units at the end of July — a figure not seen since January 2009 (when inventory was at a high of 19.2 months of homes, we are now at 7.3 months of inventory). At the same time, median home prices peaked under $380,000 and were down to about $369,000 at the end of last month.  At the end of July, 38 percent of homes in the 20-city composite had seen their prices reduced, indicating what Scott Sambucci, Altos Vice-President of Data Analytics, called a “moderately weak” market.  Sambucci called the interaction between prices and inventory the “supply effect.”  “More supply means lower prices. With the initial stimulus, sellers started to see higher demand, and less of a need to drop prices, but (now there is a higher share of price reductions) in consequence of higher inventory counts,” he said.  This is going to be a long, steep, up-hill climb, I say!  We have a “new normal“.  However, this is more normal than the frenzy of 2005-07.  The market “is what it is”….”love it or leave it”!!!

The top 10 metro areas with the highest share of price-reduced listings (percentage of discounted listings; median discount among 26 study markets):

1. Jacksonville: 54 percent share of price-reduced listings; $19,000 median discount

2. Phoenix: 52.7 percent; $16,000

3. Minneapolis-St. Paul: 51.1 percent; $17,000

4. Orlando: 50.7 percent; $20,100

5. Austin: 50.3 percent; $13,000

6. Chicago: 50.2 percent; $20,000

7. Tucson: 49.1 percent; $16,760

8. Salt Lake City: 48.8 percent; $15,000

9. Baltimore: 48.7 percent; $18,000

10. Seattle: 47.6 percent; $23,900

The top 10 metro areas with the lowest share of price-reduced listings

1. Denver: 32.5 percent; $13,100

2. Los Angeles: 39.4 percent; $28,764

3. San Francisco: 40.9 percent; $38,000

4. Miami-Ft. Lauderdale-Palm Beach: 41.2 percent; $27,100

5. Richmond, Va.: 43 percent; $12,050

6. San Diego: 43.4 percent; $31,000

7. Las Vegas: 44 percent; $15,000

8. Norfolk-Virginia Beach: 44 percent; $15,000

9. Houston: 44.3 percent; $10,000

10. Charlotte: 44.4 percent; $13,000

(Source: ZipRealty)

Now that the Easter Bunny has come and gone, our next Portland Oregon visitor will be the “TAX MAN”.  I recently wrote on “Death and Taxes”  that with tax season upon us, we need to think “tax incentives”, “tax credits” and legal “tax write-offs” (with several reminders of those credits and incentives)!!!   If you have procrastinated preparing and/or sending your prepared taxes, then perhaps you can research and make sure you’ve made all the possible real estate deductions. 

If you bought or sold real estate in 2009, you’re probably aware that interest on the qualifying mortgage and property taxes are deductible.  However, sometimes there are other legitimate expenses that are overlooked.  Points paid to secure the mortgage, whether paid by the buyer or the seller on behalf of the buyer, are generally accepted as interest and are deductible.  Interest to the end of the month shown on the closing statement is qualified interest and it may not show on the year end statement supplied by the lender.  A prepayment penalty to retire a mortgage or points not previously deducted may be deducted on the return in the year they were paid.  Of course, always rely on the counsel of your tax professional!

The Internal Revenue Service publishes a number of real estate publications. They are listed by number:
* 521 “Moving Expenses”
* 523 “Selling Your Home”
* 527 “Residential Rental Property”
* 534 “Depreciation”
* 541 “Tax Information on Partnerships”
* 551 “Basis of Assets”
* 555 “Federal Tax Information on Community Property”
* 561 “Determining the Value of Donated Property”
* 590 “Individual Retirement Arrangements”
* 908 “Bankruptcy and Other Debt Cancellation”
* 936 “Home Mortgage Interest Deduction”

These publications are available for free online  or by calling (800) TAX-FORM.

There is also a property-tax deduction for non-itemizers.  You don’t have to be a new homeowner in 2009 to deduct qualifying property taxes, but prior to 2008, you did have to itemize your taxes in order to receive the benefit–not anymore.  Under the new rule, homeowners who don’t itemize can boost their standard-deduction amount by up to $500 if they’re single and up to $1,000 if they’re married and file a joint return to account for property taxes paid during 2009.  You’ll need to include a Schedule L with your 2009 tax return, but it’s definitely worth it if your qualify.

If you paid refinancing points, you get to deduct the points over the life of the loan.  That means you can deduct 1/30th of the points per year if it’s a 30-year mortgage.  It’s not a lot of savings, but everything helps when you’re legally trying to lower your tax bill.

There are multiple energy and home improvement credits.  Homeowners can make energy-conscious purchases that will provide tax benefits when filling out their tax returns for 2009.  The new law provides tax credit for making your principal residence more energy efficient and for buying certain energy efficient items.  There is the Residential Energy Property Credit and this new law increases the energy tax credit to 30% of the cost of all qualifying energy-efficient improvements to existing homes.  This includes windows, doors, insulation, water heaters, energy-efficient heating and air conditioning systems, roofs, biomass stoves.  And, there are no income limits and no AMT (Alternate Minimum Tax) ramifications. It also raises the maximum credit limit to $1,500 for improvements placed in service in 2009 and 2010.  Go to http://www.energystar.gov for loads more information!

There are a few other tax breaks such as new car purchases.  If you bought a qualifying new car or truck ($49,500 or less) between February 16 and December 31, 2009, you may be able to deduct the sales or excise tax (for state of Washington buyers).  Your income must be less than $125,000 for a single taxpayer or $250,000 for a couple to get the full deduction.  The benefit applies to more than one vehicle, as long as all of them qualify and delivery was taken by December 31st.

Unemployment benefits are usually fully taxable.  If you received any unemployment benefits at any time during 2009, you are eligible to exclude the first $2,400 of these benefits when you file your tax return.  For a married couple, the exclusion applies to each spouse separately.

If you were unemployed in 2009 but you got a new job, moving expenses may be deductible, if you moved more than 50 miles away and you don’t have to itemize to get this deduction.  For 2009, you can deduct the cost of getting yourself and your household goods to the a new area 50+ miles away, this includes 24 cents per mile for driving your own vehicle, plus parking fees and tolls.

Don’t forget the Private Mortgage Insurance (PMI) tax deduction!  If you put down less than 20% on a house, you were required to purchase private morgage insurance, which protects the lender in the event you default on the home loan.  Starting with loans issued or refinanced in 2007, and continuing through 2010, you can deduct each year’s premiums paid on PMI for your principal residence and for a non-rental second home.  The tax break was originally good for 2007 only, but the government extended it for three years.  The deduction begins to phase out once your adjusted gross income (AGI) reaches $100,000 ($50,000 for married filing separately) and disappears entirely at an AGI of $109,000 ($54,000 for married filing separately).

There is also a Residential Energy-Efficient Property Credit witch covers very expensive but green products such as solar electric, solar water heaters, geo-thermal heat pump, wind energy and full-cell power plants with a 30% credit for qualifying costs.  With all of these credits, financing is permitted!  Again, go to http://www.energystar.gov for specifics and, of course, always consult with your tax professional!!!

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.

HAPPY HALLOWEEN!!!!

EFFECTIVE IMMEDIATELY … First-Time-Buyers who purchase within Portland city limits may be eligible for a tax credit in ADDITION to the federal $8000 credit.

The PDC (Portland Development Commission) is offering a “Mortgage Credit Certificate”, which is a dollar-for-dollar tax CREDIT off the borrowers Federal Income Tax.  The credit amount is 20% of the amount the borrower pays annually in mortgage-interest.  For example, if the interest portion of their payments totals $10k for the year, then they would get a $2000 credit.  The remaining 80% would still be a write-off as normal.

Best part … this is an ANNUAL CREDIT … which means the borrower can potentially saves thousands off their taxes for every year they continue to have the loan and live in the home.  Subject to income limitations, but those are quite generous, and a few other details, which I can explain once you have a client ready to go.

No one is sure how long this program will be available, but the educated guess is through the end of the year, and then it will depend on the PDC board renewing it.  It’s a great deal for a buyer … this will literally put around $10k or more in the buyers’ pockets the first year they buy the home, and a few thousand more each year thereafter.  This can be used with any kind of FHA or Conventional loan.

Income limits: 

1-2 person household  -  $70,000

3+ person household  -  $80,500

Must be within city limits of Portland

Non-homeowner for last three years

Remember the federal “First-Time Buyer” credit is applicable to homes closed by December 1^st, 2009.  Please don’t hesitate to call or write for more information AND please pass the information on to anyone who might be considering purchasing their first home (OR, their first home in 3 years)!!!

The “FIRST-TIME HOME-BUYER CREDIT”    (AND WHAT IT MEANS TO YOU, A FRIEND OR FAMILY MEMBER)!  

PLEASE pass the information to someone you know who might be in the market for their first home!!!

Q:  How much is the tax credit?

A:  The tax credit would be $8,000 or 10% of the purchase price, whichever is less. 

Q:  Who is eligible?

A:  Similar to the $7,500 tax credit included in the Housing and Economic Recovery Act of 2008, the $8,000 tax credit (included in the 2009 Economic Stimulus Plan) is available for the purchase of the primary residence by first-time homebuyers.

Q:  What defines a “first-time home buyer”?

A:  According the IRS, any taxpayer who has not owned a home during the 3 years prior to the date of purchase can qualify for the credit.

Q:  Do I have to repay the $8,000?

A:  No.  Unlike the previous $7,500 tax credit that did have to be repaid (which made it essentially an “interest free loan”), the $8,000 does NOT have to be repaid, UNLESS the home is sold within three years of purchase.  If the home IS sold within that 3 years period the credit is simply reversed.

Q:  What if I have no tax liability?

A:  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 involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

Q:  Are there any income limitations on the tax credit?

A:  Yes.  The tax credit is strictly for individuals with adjusted gross income (AGI) of under $75,000 or $150,000 for joint filers.  AGI is total income for a year minus certain 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 first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4.

Q:  If my AGI is a bit more than the designated $75,000 or $150,000 respectively, can I still claim the credit?

A:  It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose AGI exceeds the phase-out limits. 

Q:  What is the difference between a tax credit and a tax deduction?

A:  A tax credit lowers your tax bill dollar for dollar. A deduction shaves money off your taxable income, so the value depends on your tax bracket. For example, if you’re in the 25% bracket, a $1,000 deduction lowers your tax bill by $250. But a $1,000 credit lowers the bill by the full $1,000, no matter which bracket you might be.

Q:  What type homes qualify for the tax credit?

A:  Included are single-family detached homes, attached homes like townhouses and condominiums, manufactured homes or mobile homes and houseboats (as long as all other criteria are met).

Q:  What is the time frame for completing my purchase to be eligible for the “First-Time Homebuyer” credit?

A:  This tax credit applies to properties purchased on or after January 1^st, 2009 and before December 1^st, 2009 (so there’s still lots of time).  First-time home buyers who purchased a principal residence on or after April 9^th, 2008 and before January 1, 2009 may qualify for the former $7,500 tax credit (which must be repaid, but operates like a zero interest loan).  Purchase date refers to the date you closed escrow on the property.

Q:  What if I am eligible to participate in another state or local first-time homebuyer mortgage program? 

A:  You may now claim the credit (previously this credit was prohibited if you participated in any other first-time homebuyers initiatives).

Q:  What if the home is a short sale or foreclosure?

A:  The credit does apply.

Q:  What if the home is in disrepair and I’m willing to do the work but worried about getting the home financed?

A:  There are two possibilities for financing:  the FHA 203k loan and a conventional “Purchase & Renovate” loan (more to follow on those forms of financing).