As
the April Home buyer Federal Tax credit ends, California has stepped in to
bolster our economy with its own housing tax credit. This is great news;
however, it is very different than what we were provided by the Feds. In
this go around, California has more rules, regulations and, more importantly,
mandatory steps that must be followed to ‘earn’ this credit. Yes, if you don’t follow these guidelines, the credits will be disallowed.
Also, and equally significant, California has allocated a mere $200M divided up
between new home (not resale) and first time homebuyers. Not much tax
credits to spread around. Here are some of the highlights...
These tax credits are only available for taxpayers who purchased their primary residence after May 1, 2010.
Taxpayers
may apply for the tax credits if they have entered into a contract before May
1, 2010, as long as escrow closes on or after May 1, 2010.
·The
tax credit is limited to the lesser of 5 percent of the purchase price or
$10,000. Tax payer must apply the total tax credit in equal amounts over
3 successive tax years, beginning in the tax year inwhich
the home is purchased.
·The
tax credit application cannot be submitted prior to the close of escrow and must
be submitted with the final settlement within 14 days of the close of escrow.
Caveat Emptor, California Only First Time/New
Home Buyer Credit will be gone before you know it.
Last
week, President Barack Obama signed a law that extends through next
spring a temporary tax credit of up to $8,000 for some first-time home
buyers, which was due to expire Nov. 30. The law also adds a new tax
credit of up to $6,500 for certain repeat home buyers. The package,
which the government estimates will cost a total of $11 billion, is
intended to help spur housing sales, a critical part of the economy.
Here are some answers to common questions about the new rules.
Q: What has stayed the same in the new law?
1) First-time home buyers still get a credit of as much as 10% of
the purchase price, up to a maximum $8,000. "First-time" means people,
including both partners of a married couple, who haven't owned a
principal residence for three years before the purchase.
2) All taxpayers who claim a credit must use the home as a principal residence for the next three consecutive years.
3) The credits offer dollar-for-dollar reductions of tax and are
refundable. This means that a taxpayer who doesn't pay enough tax to
offset the credit can get a refund. For example, if you qualify for an
$8,000 credit but only owe $5,000 in tax, you could receive a $3,000
check from the Internal Revenue Service.
4) Under the new law, as under the old, 2009 home buyers may claim
the credit on either their 2008 or 2009 returns, and 2010 buyers may
claim the credit on either their 2009 or 2010 returns.
5) Taxpayers do not qualify for a credit if they buy from a lineal
ancestor or descendent, including parents or grandparents and children
or grandchildren.
Q: What has changed?
Several important features took effect as of Nov. 6:
1) To take advantage of the tax credits, a buyer must have a
contract in place before May 1, 2010, and the deal must close before
July 1, 2010. No further extension is expected.
2) The price of the house is now capped. For purchases made after
Nov. 6, no credit is available for any home costing more than $800,000.
3) There is now a tax credit for repeat buyers as well as for
first-time buyers. Taxpayers who have lived in one residence for five
consecutive years of the past eight can now qualify for a tax credit of
as much as 10% of the purchase price, up to a maximum $6,500, of a new
principal residence. The new home does not have to cost more than the
old one.
4) Income limits for people who qualify for a tax credit are far
more generous than under the previous law. For single filers, the
credits now phase out between $125,000 and $145,000 of modified
adjusted gross income; for married couples, the range is $225,000 to
$245,000. For most people, modified adjusted gross income will be the
same as adjusted gross income.
5) The new law contains anti-abuse measures designed to stem fraud,
which became a problem with the previous home-buyer tax credit. Most
buyers must be 18 or older, and no taxpayer may take a credit if he or
she is claimed as a dependent on someone else's return. Taxpayers
taking the credit will also have to furnish proof of purchase.
According to Robert Dietz of the National Association of Home Builders,
this will usually be a HUD-1 form.
6) People taking the tax credit, as under the old law, aren't
allowed to buy a home from a lineal ancestor or descendant. The new
law, applying to purchases made after Nov. 6, also says a person may
not take a credit if the home is purchased from a spouse or the
spouse's lineal relatives.
Q: If I bought a house last spring or summer, can I get a tax credit?
You qualify if you are a first-time buyer and meet the other
requirements, but not if you are a repeat buyer. The new credit for
repeat buyers applies only to purchases made after Nov. 6.
Q: What is the definition of "principal residence"?
If you own more than one home, your principal residence is usually
the one where you spend most of your time. In determining residence the
IRS may also consider where your family lives and your mailing address
for bills and correspondence, among other factors.
Q: Can a principal residence be something besides a conventional house?
Yes. A principal residence may also be a condominium, co-op
apartment, attached or semi-attached townhouse, or even—if it has
eating, sleeping and toilet facilities—a boat, motor home or trailer.
Manufactured homes qualify in some states.
Q: Does the person who claims the credit have to use the home as a principal residence?
Yes.
Q: If I buy a new home and live in it, do I also have to sell my old one in order to take advantage of the credit?
This is unclear. The law appears to allow repeat buyers to retain
their old home, for which no tax credit was given, while claiming a
credit for the new one. What is clear is that if you buy a new home
using the credit, you must use it as your principal residence.
Q: How may the credits be allocated among two or more unmarried buyers?
This also is unclear. But if the IRS adopts the rules that applied
to the previous tax credit, which are detailed in IRS Notice 2009-12,
there is room for planning. The notice says that taxpayers may use "any
reasonable manner" to allocate the credit. It even provides an example
in which two unmarried buyers allocate the credit to the lower earner
in order to qualify for it.
Q: I need the credit refund to help make the down payment. What can I do?
There's no rushing the IRS. But one option is to adjust your current
withholding from your paychecks to reflect the fact that you will be
taking the credit later. But be careful: If you don't make the
purchase, then you may owe interest and penalties. Consult with Michael Marshall at Rapid Tax for the best advice.
Q: Is it possible to qualify for a credit if I am building a home on a lot I already own?
Yes, according to the National Association of Home Builders. The
purchase date is usually considered to be the date of first occupancy,
so you would need to move in before July 1, 2010.
Q: May I take a credit if I am building a large addition to my home?
No; these credits apply only to the purchase of a home.
Q: Are there special rules for the military?
Yes. In general, members of the military and foreign service and
intelligence communities who are serving overseas on "official extended
duty" for at least 90 days during 2009 and the first four months of
2010 have an extra year to take advantage of these credits. Consult your
tax adviser Michael Marshall at Rapid Tax.
Q: Where can I get more information?
Go to
www.federalhousingtaxcredit.com a Web site sponsored by the
National Association of Home Builders. You can also look for links from
the IRS's home page,
www.irs.gov or search for Homebuyer Credit.Another option is to consult Michael Marshall at Rapid Tax for the best advice.
Washington, D.C.
(November 9, 2009)
Obama Signs Homebuyer Tax Credit Extension
President Barack Obama has signed the extension of the First-Time
Homebuyer Tax Credit, along with an extension of unemployment benefits.
The bill allows those buying a primary residence for the first
time to claim 10 percent of its purchase price, up to $8,000 for single
taxpayers or married taxpayers filing jointly.
The income range for eligible purchasers has been expanded so that
the credit doesn’t begin to phase out until the modified adjusted gross
income of purchasers exceeds $125,000 for single filers, $225,000 for
joint filers. The old phase-out thresholds were $75,000 and $125,000,
respectively.
The credit has also been expanded to cover purchases of a
new principal residence by people who have lived in their current
principal residences for at least five out of the last eight years.
However, they will only be eligible for a $6,500 maximum credit.
One rule that isn’t changing is that a purchaser can treat the
purchase as having occurred on December 31 of the previous year, and
claim the credit against that year’s taxes.
Responding to concerns about fraud and misuse of the credit,
the legislation also caps the purchase price of eligible homes at
$800,000, excludes purchasers under 18 years of age and tightens other
requirements.
Earlier this year, the American Recovery and Reinvestment Act
allowed businesses to carry back net operating losses (NOLs) from 2008
for three, four or five years rather than the standard two years, but
limited this opportunity to businesses with average gross receipts of
no more than $15 million. The new law provides a similar election to
all U.S. businesses of every size, but with a 50-percent income limit
on NOL offsets in the fifth year. The provision applies to NOLs
incurred in either 2008 or 2009, but not for both years. However, a
small business that elected to carry back 2008 NOLs under the Recovery
Act can make the election for an additional year, carrying back NOLs
from both 2008 and 2009 for up to five years.
“This is a major expansion of the NOL rules,†Luscombe said.
“Like the homebuyer’s credit, it can produce a quick refund from an
amended return, which businesses can use for any purpose they wish.â€
The bill would also require electronic filing by all return
preparers “except those who neither prepare nor reasonably expect to
prepare ten or more individual income tax returns in a calendar year.â€
The measure is effective for returns prepared after Dec. 31, 2010.
It also extends unemployment benefits for 14 weeks. The 27
states with unemployment rates of 8.5 percent or higher would gain an
extra six weeks on top of that, but all states would be eligible for
the 14 weeks of extended benefits.
Looking to make home improvements to help keep energy costs down
this winter? The federal government is offering some financial
incentives in the form of tax credits.
The credits can be claimed on a homeowner's income taxes for 2009 or
2010, whatever year the improvements were purchased. With a credit, the
amount comes off any taxes you owe. Also, the credit is nonrefundable,
meaning it allows taxpayers to lower their tax liability to zero, but
not below zero, according to the Internal Revenue Service.
It's a good time to be thinking about improvements, says Ronnie Kweller, spokeswoman for the Alliance to Save Energy.
Upgrade your insulation, windows, doors, roofing, heating and
air-conditioning system or water heater, and you could qualify for a
federal tax credit for 30% of the purchase price of the product -- up
to a $1,500 maximum credit.
To qualify for the credit, you must place those purchases in service between Jan. 1, 2009 and Dec. 31, 2010.
"The $1,500 cap applies to the aggregate amount of credits claimed
in both years combined," says Robin Christian, senior tax analyst at
the tax and accounting business of Thomson Reuters. "Also, only
improvements made to your principal residence qualify -- vacation homes
are not considered."
For typically more-costly
improvements -- including solar water heaters, solar panels, small
wind-energy systems and geo-thermal heat pumps -- the credit is for 30%
of the purchase price, with no cap, according to energystar.gov. Fuel cells also are covered, at 30% of the cost, up to $500 per 0.5 kilowatt of power capacity.
Credits for these improvements are available through 2016, but you
must claim them for the tax year in which you made the purchase. And
all but the fuel-cell equipment can be used for a vacation home as well.
One note: To qualify for the credits, all of the products must be
used inside a home. That means equipment used to heat a pool or hot tub
doesn't qualify, Ms. Christian says.
Also, the federal tax credits don't always cover the cost of
installation. The installation costs for heating and cooling systems
and some other higher-cost improvements qualify, according to the
Energy Star site. But installation of windows, insulation, doors and
roofs doesn't.
The tax-credit rules are different if you are building a new home.
In this instance, you can qualify for the credit for some upgrades,
including geo-thermal heat pumps, solar panels, solar water heaters,
small wind-energy systems and fuel cells. But you won't get a tax
credit for the purchase of windows, doors, insulation, roofs, heating
and air-conditioning systems, and nonsolar water heaters, according to
the Energy Star site.
Make sure any products you purchase come with a Manufacturer
Certification Statement, a signed statement from the manufacturer that
says the product qualifies for the tax credit. You will need that and
any receipts when you claim the credit on your taxes.
Where to Start
When looking to make a home more energy efficient, consumers typically first turn to insulation and windows.
"If you need insulation, that is the most cost-effective upgrade you
can make -- even without a tax credit," says Karen Schneider, Web-site
manager for Energy Star. "If you have a 50-year-old home and never
looked at the insulation, now is the time to do that."
Many insulation projects, such as upgrading or adding insulation in
an attic, are easy for do-it-yourselfers, says Michael Chenard,
director of environmental affairs for home-improvement store Lowe's.
"Insulation is one of the easiest things to do that is covered by the
tax-credit promotion," he says.
Replacing windows also can be done by amateurs, as long as the measurements are accurate, Mr. Chenard says.
The tax credit makes the cost of a more-efficient window competitive
with a lower-grade window that doesn't qualify, says Art Donnelly,
owner of Legacy Builders & Remodelers in Holbrook, N.Y. And because
of the weak economy, companies' "backlogs aren't as long," he says. "So
it's quicker to get things installed."
July 20, 2009
The Tax Rabbi is (again) a radio SuperStar! On Sunday July 26, Michael was the guest on LA radio Hot 92.3, the Community Report with Josefa Salinas. Once again the Tax Rabbi speaks!!!
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