Brian Rademacher's Blog

Tax Credit

Brian Rademacher (Remax Advantage Plus) — Tue, 14 Oct 2008 15:02:08 -0700

First-time homebuyer tax credit rules

1. The tax credit is not a deduction

2. The tax credit is repayable to the federal government 3. Selling your home before the 15 years are up?

4. The credit also will be written off if you die before it's repaid 5. The tax credit is restricted to 'first-time homebuyers 6. The tax credit may be taken only for the purchase of a principal residence 7. Modified adjusted gross income limits 8. Some may get a partial credit 9. Technically, the credit is equal to 10 percent of the purchase price of the home 10. The home must be purchased on or after April 9, 2008 11. Buying a home in 2009?

12. The credit cannot be used with mortgage-revenue bond financing

If you're planning to buy a home in the next 10 months, you may be eager to take advantage of the federal government's latest effort to jump-start the nation's moribund housing markets: A tax credit of up to $7,500 for certain homebuyers.

- advertisement -

The credit may appear to be an attractive opportunity, but you should be sure you read the fine print before you elect to claim it on your federal tax return.

"The big story is that it is not a credit. It is a loan, and you are going to have to pay it back, so you'd better make sure that you have the money," says John W. Roth, senior tax analyst at CCH Group, a Riverwoods, Ill.-based company that provides tax software, services and information.

"If you claim the credit, you could end up with some tax issues a couple of years down the road because of the tax liability, and if you sell the house, there is a possibility that you could have a bigger tax bill."

With that warning in mind, here's a summary of the rules.

1. The tax credit is not a deduction, but rather a true credit in the sense that your federal income tax liability will be reduced dollar-for-dollar up to the amount of the credit you're entitled to take. For example, if you owed federal income tax of $8,000 and you took the maximum credit of $7,500, your tax bill would be cut to $500. The credit is also refundable: If you owed, for instance, $1,500 in income tax and, again, you took the maximum credit, your tax liability would be zeroed out and you'd get a check for $6,000 from the government.

2. The tax credit is repayable to the federal government. The total credit is divided into small bits of 6.67 percent, each of which is due annually for 15 years.

"The big story is that it is not a credit. It is a loan." 3. If you sell your home before the 15 years are up, the remainder of the credit that you haven't yet repaid will become due. If you sell your home at a loss, the government will write off the balance of the credit that you still owe.

4. The credit also will be written off if you die before it's repaid. Special rules apply to transfers of property between spouses or incident to divorce; or if the home is subject to "involuntary conversion," such as being destroyed by a natural disaster; or is seized by a government authority though the exercise of eminent domain.

5. The tax credit is restricted to "first-time homebuyers," but the definition includes anyone who didn't have an ownership interest in a principal residence during the prior three years. If you're married, you and your spouse must fit that definition. An ownership interest in an investment property or vacation home is not a disqualification. The rules aren't entirely clear as to how the tax credit will be allocated if two unmarried people buy a home together and only one of them meets the definition.

6. The tax credit may be taken only for the purchase of a principal residence, which means a home where you plan to live most of the time. The home may be a detached house, condominium, town house, manufactured (aka mobile) home or houseboat. It must be located in the United States. A home purchased from a "related party" (e.g., a parent or sibling) is not eligible.

7. Your modified adjusted gross income, or MAGI, on your federal tax return must be less than $75,000 if you're single or a married head of household, or $150,000 if you're married and filing a joint tax return with your spouse. MAGI is a technical term that's defined by the IRS, so you should consult a tax professional if you're not certain you meet this test.

- advertisement -

8. If you're single or a married head of household and your MAGI is more than $75,000, but less than $95,000, you may get a partial credit subject to a complicated formula. The same is true if you're married, filing jointly, and your MAGI is more than $150,000, but less than $170,000. If your MAGI is more than those limits, you're not eligible.

9. Technically, the credit is equal to 10 percent of the purchase price of the home, up to a maximum of $7,500. Thus, if the home is worth less than $75,000, the maximum credit is 10 percent of the price, and if the home is worth $75,000 or more, the maximum credit is $7,500. Married couples who file separate tax returns can claim half the credit on each return.

10. The home must be purchased on or after April 9, 2008, but before July 1, 2009. Since the law was enacted July 30, 2008, part of that time frame is retroactive. That means if you already bought a home after April 9, 2008, but before July 30, 2008, you can still take the credit.

11. If you buy a home in the first half of 2009, you can elect to claim the credit on your 2008 tax return. That way, you'll receive the money sooner, but the payback schedule will begin sooner as well. Tip: If your MAGI is over the limit for the full credit in either 2008 or 2009, you can claim the credit in the other year to maximize your benefit.

12. The credit cannot be used with mortgage-revenue bond financing or the Washington, D.C., first-time homebuyer tax credit.

First Time Home Buyer Tax Credit Rules

Brian Rademacher (Remax Advantage Plus) — Tue, 14 Oct 2008 15:01:20 -0700

First-time homebuyer tax credit rules

1. The tax credit is not a deduction

2. The tax credit is repayable to the federal government 3. Selling your home before the 15 years are up?

12. The credit cannot be used with mortgage-revenue bond financing

- advertisement -

The credit may appear to be an attractive opportunity, but you should be sure you read the fine print before you elect to claim it on your federal tax return.

With that warning in mind, here's a summary of the rules.

2. The tax credit is repayable to the federal government. The total credit is divided into small bits of 6.67 percent, each of which is due annually for 15 years.

- advertisement -

12. The credit cannot be used with mortgage-revenue bond financing or the Washington, D.C., first-time homebuyer tax credit.

Headline News

Brian Rademacher (Remax Advantage Plus) — Tue, 22 Apr 2008 13:18:52 -0700

Today almost every headline you see about real estate is doom and gloom. It almost seems there is no end in sight to the housing downturn. The fact is 2007 was the first year since the great depression that we have experienced a negative drop in housing prices on a national basis. That is astounding! What is being done to turn this around? Mortgage interest rates are currently within ear shot of the very low's of 2003. The Federal Reserve has lowered the Fed Funds Rate at a pace we have not seen in decades. Additonally, Congress has passed a $170 billion stimulus package that will hit later this year. All of this fuel for the fire that stokes growth in our economy. Now that we have reviewed the data points, should you wait a year two see "if" housing prices recover? The recent article I read was in part authored by Peter Lynch. Peter points out that a typical home selling today for $218,900 with 20% down at 5.50% would carry a monthly payment of $994.31. Lets say that 12 months from now the same house goes for 10% less, or $197,010. But by then the recession is over and the Fed is increasing rates to stem inflation. If mortgage costs rise one percent, to 6.50%, your monthly payment would $996.19 and you saved nothing. Wow! The math really works. The delay would have saved nothing and cost you a year living someplace you would rather not be.

Why use a realtor

Brian Rademacher (Remax Advantage Plus) — Fri, 21 Mar 2008 14:13:19 -0700

There are many do it on your own type of people in this world, and I am not saying this is good or bad just stating the obvious. When it comes to selling real estate many people think they can do it themselves and save money. I believe that is short sighted and this is why. People who sell homes on there own will save costs but they are not looking at their over all bottom line. A real estate professional on average will produce more showing for their clients property and in turn generate higher offers then a for sale by owner off setting any fees, and increasing their bottom line. The other factor to consider is that if you do get an offer, when selling on your own, the first thing out of the buyers mouth is you do not have an agent therefore you can lower your price. I know there are people that have sold property on there own and came out smelling like a rose, in fact I did twice myself before realizing there is a better way to do things. Thanks for reading my post and would appreciate any feedback on my thoughts.

Why use a Realtor?

Brian Rademacher (Remax Advantage Plus) — Thu, 28 Feb 2008 15:29:29 -0800

I had a conversation with a friend of mine this week that made me sit back and think. It was a friendly debate on why someone should use a professional real estate agent. He was specifically talking in regards to selling his property. I could tell that he had this conversation with realtors in the past and they had given him (in his mind) disappointing answers to this very important question. I have my specific answers to this question and for every professional realtor they must have their own answers. The reason it made me think is that according to my friend most do not. That concerns me for this industry as a whole we need to be prepared for these types of questions from consumers. If I am selling my home and you are not able to answer this question or these types of questions I would not hire you either. Good Luck and Good Selling

Mortgage Rates

Brian Rademacher (Remax Advantage Plus) — Thu, 31 Jan 2008 12:11:12 -0800

January 31, 2008

Perspective Buyers

It has been my pleasure to be a resource for your real estate activities. I wanted to blog on the state of what I am seeing in the market to my valued customers.

With the Federal Reserve cutting short term interest rates over 1 ¼ points in the last eight business days many peoples understanding of thirty year mortgages are inaccurate.

Let me explain, with short term interest cuts the Fed is trying to avoid a recession by helping people with auto loans, lines of credit on their home, credit cards and business loans at banks, decreasing their monthly payments and spurring additional cash flow to put back into the economy.

What people tend to misunderstand is that thirty year mortgages are tied to the bond market. When the bond market senses inflation going up, it typically will make mortgages rise. As the Fed reduce rates, cash flow increases, making inflation a concern, therefore we feel long term rates or thirty year mortgages will start to rise once the government turns its attention to inflation worriers.

In general we feel that we have a short window of three to four months to take advantage of both low mortgage rates and discounted prices on homes. If you have any further questions please feel free to use us a resource in all your real estate needs.

Brian Rademacher