Tax Credit Deadline Fast Approaches….

February 18, 2010

Deadline  rapidly approaching for Tax Credits for first time home buyers and home sellers considering moving up. Should you make your move?

Call me for a free, no-obligation consultation to see if you can benefit by making your move now versus waiting until later this year.

The Worker, Homeownership, and Business Assistance Act of 2009’s tax credit of up to $6,500 for qualified move-up home buyers ends April 30, 2010. You can purchase by June 30, 2010 but must have a binding sales contract signed by April 30, 2010.

 The first time buyers tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence also ends April 30, 2010. A purchase completed by June 30, 2010 (with a binding sales contract signed by April 30, 2010) may qualify.

It usually takes 30 to 45 days from the moment we find the right home to the exciting day you get your keys. That means that we should start the home search process at this time. If you send me your basic criteria for your dream home (area, price, size, # of bedrooms/bathrooms, features, garage space, school requirements, etc.), I can create a complimentary client web page that will send you a list of properties that meet your criteria. You can then pick your favorites and we can schedule a private showing of these homes. Once we find your perfect home, we will run a market analysis of this property as it compares to recent sales to help you determine a fair offer price. We assist with all negotiations, attend your inspections, watch over and coordinate all aspects of the transaction (opening escrow, appraisal, survey, HOA documents, Title Commitment, etc.) to help ensure a smooth transaction.

Historically low interest rates, historically low housing prices in most areas and great values in the move up home market make this the perfect time to act. Call me for a free consultation to run the numbers for you. Don’t miss out on the great values!

Christi Borden, Realtor

832-368-5953

christi@christiborden.com

www.ChristiBorden.com

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Understanding the First Time Home Buyer’s Credit… Before it is Too Late!

September 7, 2009

1.   Who is eligible to claim the tax credit?
If you are a first-time home buyer purchasing a new home or a resale-you are eligible for the tax credit.  The purchase must take place on or after January 1, 2009 and before December 1, 2009 to qualify for the tax credit. As it applies to the tax credit, the purchase date is the date when the home closes and the title to the property transfers to the home owner.

2.   What is the definition of a first-time home buyer?
The tax credit law defines a “first-time home buyer” as a buyer who has not owned a principal residence during the three-year period prior to the purchase. If you are married, both spouses cannot have owned a home.

For example, if you didn’t own a home but your spouse did, you do not qualify.  For unmarried purchasers, the credit amount can be given to any buyer who qualifies as a first-time buyer, for instance, if a parent jointly purchases a home with a son or daughter. If you owned a vacation home or rental property not used as a principal residence you are not disqualified as a first-time home buyer.

3.   How is the amount of the tax credit determined?
The tax credit is 10 percent of the home’s purchase price, however, there is a maximum $8,000 credit.

4.   Are there any income limits for claiming the tax credit?4.
The full tax credit amount is given to buyers with a modified adjusted gross income (MAGI) of less than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. For taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) the credit is reduced to zero.  Taxpayers between these figures are prorated accordingly.
  
5.   What is “modified adjusted gross income”?
Modified adjusted gross income or MAGI is defined by the IRS.   For most buyers this will be the figure at the bottom of the first page of form 1040 or 1040A.  For Form 1040 EZ this is reported on line 4 as of 2008.

6.   If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
Possibly. It depends on your income.

7.   Can you give me an example of how the partial tax credit is determined?
There is a $20,000 difference between those who are eligible for a full tax credit and those where the credit is reduced to zero.  If you take the amount you are over the limit by and divide it by the 20,000, this will give you the percentage that you are over the limit by.  Subtract that number from 100% and then multiply it times the $8,000.  That will give you your tax credit amount.

For example: A married couple has a modified adjusted gross income of $165,000. Their income exceeds $150,000 by $15,000. Dividing $15,000 by $20,000 yields 0.75.  This means they are over the limit by 75% and so are eligible for a tax credit of 25%.  Multiplying $8,000 by 0.25 shows that the buyer is eligible for a partial tax credit of $2,000.

Please remember that this is an example. You should always consult your tax advisor.

8.   How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008?
The most significant difference is that this tax credit does not have to be repaid.  This tax incentive is a true tax credit. But home buyers must use the residence as a principal residence for at least three years or face having to repay it. Certain exceptions apply.

9.   How do I claim the tax credit? Do I need to complete a form or application?
You 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 on Line 69 of their 1040 income tax return. No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests.

10.What types of homes will qualify for the tax credit?
Any home that will be used as a principal residence qualifies for the credit. This includes single-family detached homes, attached homes (i.e. townhomes and condominiums), manufactured homes (also known as mobile homes), modular homes and houseboats.  If it qualifies for the capital gains tax on a primary residence, it qualifies for this.

11.I read that the tax credit is “refundable.” What does that mean?
It means that the credit can be claimed even if the taxpayer has little or no federal income tax liability to offset.

For example, if you owe $6,000 in taxes and had $4,500 in taxes withheld for the year you still owe $1,500 in taxes.  You would receive a check from the government for $6,500.  ($8,000 – $1,500 = $6,500.)
Or perhaps more common would be that you have a tax liability of $6,000 and you had $7,500 withheld so you would be getting a refund of $1,500 before the credit – the credit gets added to your refund so you would get a refund of $9,500 ($1,500 + $8,000 = $9,500)
And you don’t have to have any tax liability in the year you claim the credit – but you do have to have income.

12.I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns.How can I claim the new $8,000 tax credit instead?
You may file an amended 2008 tax return with a 1040X form. You should consult with a tax advisor to ensure you file this return properly.
 
13.Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
Yes. The “purchased” date is the date the owner first occupies the house.  The date of first occupancy must be on or after January 1, 2009 and before December 1, 2009.

In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit isdetermined by the settlement date.

14.Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
Yes. The tax credit can be combined with the MRB home buyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.

15.I live in a district where I am already receiving a first time home buyer credit (Washington D.C.)   Can I claim both credits?
No. You can claim only one.

16.I am not a U.S. citizen. Can I claim the tax credit?
Consult your tax accountant.  If you are NOT a nonresident alien (as defined by the IRS), have not owned a principal residence in the past three years and meet the income limits you may be eligible to claim the tax credit for a qualified home purchase.

17.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 $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.

A tax deduction is subtracted from the amount of income that is taxed. Assuming the same $8,000 tax liability from above, a taxpayer is in the 33 percent tax bracket would have their liability reduced from $8,000 to $5,360. ($8,000 minus 33%).
So the tax CREDIT is much more helpful to the buyer

18.I bought a home in 2008. Do I qualify for this credit?
No, but you may qualify for another tax credit  if you bought  your first home between April 9, 2008 and January 1, 2009.
 
19.Is there any way for a home buyer to get the money before they file their 2009 tax return?
Yes. If you believe you will qualify for the tax credit you can reduce your withholding taxes on your paycheck by adjusting your withholding amount on your W-4 via your employer or through your quarterly estimated tax payment.  You can put this saved money aside to use as a downpayment.
 
IRS Publication 919 contains rules and guidelines for income tax withholding. Please note that if the qualified purchase does NOT occur, then you will be liable for repayment to the IRS of income tax and possible interest charges and penalties.  Consult your account prior to doing this.
 
20.If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
Yes. The law allows taxpayers the opportunity to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008.

Taxpayers buying a home who wish to claim it on their 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult with a tax professional to determine how to arrange this.
 
21.For a home purchase in 2009, Can I choose which year to claim the credit (2008 or 2009) to make sure I get the largest credit possible?
Yes.  You can choose to claim the credit in the tax year that will give you the greatest credit based upon your MAGI.  The purchase must take place in 2009.


Using First-Time Homebuyer Tax Credit

May 29, 2009

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, DC 20410-8000
ASSISTANT SECRETARY FOR HOUSINGFEDERAL
HOUSING COMMISSIONER
www.hud.gov espanol.hud.gov

May 29, 2009
MORTGAGEE LETTER 2009-15

From: Brian D. Montgomery
Assistant Secretary for Housing-
Federal Housing Commissioner

TO: ALL APPROVED MORTGAGEES
SUBJECT: Using First-Time Homebuyer Tax Credits

The American Recovery and Reinvestment Act of 2009 (Recovery Act) provides for as much as an $8000 tax credit to qualified first-time homebuyers. FHA supports this important initiative to promote homeownership. This mortgagee letter provides:
• Basic information on the first-time homebuyer credit obtained from the Internal Revenue Service (IRS) website. Complete information on how the first time homebuyer tax credit works, including the eligibility requirements for the tax credit, the amount of the tax credit that a first-time homebuyer may be eligible to receive, and how a homebuyer may claim the tax credit is available on the IRS website at http://www.irs.gov/newsroom/article/0,,id=204671,00.html?portlet7.
• Guidance on how FHA-approved mortgagees and FHA-approved nonprofit organizations as well as Federal, state, and local government agencies or instrumentalities may assist homebuyers that are eligible for the tax credit.

I. About the First-Time Homebuyer Tax Credit Please check the IRS website to ensure you have up-to-date information. A brief overview of the tax credit from the IRS website and a copy of IRS Form 5405 (including instructions) are attached for reference. Pursuant to 31 U.S.C. 3727 and 26 U.S.C. 6402, a refund of the first-time homebuyer credit will be made by the IRS only to the taxpayer, not to a third party. In other words, any refund issued in response to a claim for this credit cannot be assigned by a taxpayer to a third party.

II. FHA Tax Credit Guidance
Secondary Financing Consistent with existing FHA policy, FHA will permit entities covered by Section 528 of the National Housing Act to use the current authority to offer tax credit advances with second liens in a
manner consistent with the requirements in 12 U.S.C. 1709(b)(9). Eligible government agencies and instrumentalities of government are described in handbook HUD-4155.1 5.C3 and 5.C4.

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Conditions:
• The tax credit advance, when combined with the FHA-insured first mortgage may not result in cash back to the borrower.
• The second lien may not exceed the total amount needed for the down payment, closing costs, and prepaid expenses.
• Secondary financing may be “soft” (silent) or require a monthly repayment.
• If payments are required, they must be included within the qualifying ratios and, when combined with the first mortgage, cannot exceed the borrower’s reasonable ability to pay.
• Payments must be deferred for at least 36 months to not be included in the qualifying ratios.
• If the tax credit advance loan has a short term for repayment, it must also provide that if the borrower fails to repay by the designated deadline, principal and interest payments begin automatically or the loan converts to a “soft” second.
• The secondary financing may not require a balloon payment before ten years.

Purchase of Tax Credit
FHA-approved mortgagees and FHA-approved nonprofit organizations as well as Federal, state, and local governmental agencies and instrumentalities thereof may purchase the tax credit anticipated by the homebuyer.

Conditions:
• The proceeds of the sale of the tax credit may not exceed the anticipated tax credit due the homebuyer based on the computations of form IRS 5405;
• The borrower must submit a signed certification that the tax credit is not subject to offset due to other indebtedness.
• A copy of the borrower’s tax refund and/or the IRS 5405 must be collected and retained in the FHA case binder.
• Any costs attendant to the purchase of the tax credit are to be nominal and discounting the anticipated credit to cover the costs and expenses of the transaction must be reasonable and disclosed to the homebuyer. In FHA’s view, fees and costs that total more than 2.5% of the anticipated credit are considered excessive. (Example: $6000 to be refunded, with all fees
and costs discounted, borrower should receive not less than $5850.00 for sale of tax credit.)
• Pursuant to 12 U.S.C. 1709(b)(9), the homebuyer’s downpayment required for eligibility for FHA insurance may not consist of any funds (including funds derived from a sale of the homebuyer tax credit) provided by the mortgagee, the seller, or any other person or entity that financially benefits from the transaction (or by any third party or entity that is reimbursed, directly or indirectly, by the financially benefiting person or entity).
Accordingly, the proceeds of the sale of the tax credit to FHA approved mortgagees, the seller, or any other person or entity that financially benefits from the transaction (or any third party or entity that is reimbursed, directly or indirectly, by the financing benefiting person or entity), may not be used to meet the 3.5% minimum downpayment, but may be used as additional downpayment, buying down of interest rate, or other closing costs.

Due Diligence
FHA expects that entities purchasing tax credit assets will employ appropriate due diligence measures including, but not limited to:

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• Require the homebuyer to draft and provide the IRS form 5405 “First-Time Homebuyer Credit.”
• Contact the borrower’s employer and review pay stubs to confirm there are no outstanding garnishments.
• Review the homebuyer’s credit report to ensure there are no unpaid student loans, or other obligations that could be offset against the credit.
• Validate that all of the eligibility requirements for the tax credit are fulfilled
• Review previous tax returns and IRS tax assessment letters, if any, to determine that the borrower does not have unsettled obligations to the IRS

III. Monitoring
In order to track the tax credit monetization activities, FHA will require FHA-approved mortgagees to input into FHA Connection the following data:
• Name and EIN of the party who purchased the tax credit, • The amount of the anticipated credit, and • The amount the homebuyer paid for the monetization services. The lender must also collect and maintain in the FHA case file the documentation that validates all of the tax credit monetization data submitted via FHA Connection. FHA will monitor the purchase of tax credit transactions closely. Charging of excessive fees or costs in the purchase of the tax credit or increasing other fees or charges in the transaction without FHA approval may result in referral to the Mortgagee Review Board, and particularly with respect to entities that are not FHA-approved mortgagees, referral to the Federal Trade Commission, or referral to the appropriate State Attorney General office, as may be applicable.

If you have any questions regarding this mortgagee letter, please call FHA’s Resource Center at 1-800-CALL-FHA (1-800-225-5342). Persons with hearing or speech impairments may access this number via TDD/TTY by calling 1-877-TDD-2HUD (1-877-833-2483).


First Time Home Buyer’s Tax Credit – Now Available for Down Payment!

May 13, 2009

Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, on Tuesday said that the Federal Housing Administration is going to permit its lenders to allow home buyers to use the $8,000 tax credit as a down payment.

Previously, most buyers wouldn’t receive the funds until after they filed their tax return, and that deterred some people from using the credit. The NATIONAL ASSOCIATION OF REALTORS® has been calling for the change.

“We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a down payment,” Donovan says. His remarks came in an address to several thousand REALTORS® gathered Tuesday morning at “The Real Estate Summit: Advancing the U.S. Economy,” at the 2009 REALTORS® Midyear Legislative Meetings & Trade Expo in Washington, D.C..

He says FHA’s approved lenders will be permitted to “monetize” the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately at the closing table.

Other Solutions for Today’s Market

During his address at the summit, Donovan went on to say that the Obama administration plans to further stabilize the housing market. “I do think we have some early signs that the market overall is stabilizing,” Donovan says. “Since January we’ve seen both home sales moving up and down around a relatively stable number and we are seeing the first signs that the rapid decline in home prices is starting to abate.”

The morning session included a panel discussion that was moderated by CNBC’s Ron Insana. Panelists examined cutting-edge solutions necessary to promote and preserve homeownership and real estate development, stimulate the economy, and protect the nation’s taxpayers. They also shared their ideas on what the role and responsibility of the federal government is in the revitalization effort.

“Right now the Federal Reserve is the market,” said panelist Jay Brinkman, chief economist for the Mortgage Bankers Association. “What will be the effect when the Fed stops buying?” Brinkman explained that an exit strategy must be planned for the long-term; the federal government cannot continue to support the mortgage markets indefinitely.

“We are thrilled that so many high-caliber individuals were able to join us today at this important meeting to promote stability in the housing market and the U.S. economy,” said NAR President Charles McMillan. “We look forward to an ongoing dialogue and action toward this goal, during our midyear meetings this week and beyond.”

The real estate summit is part of the 2009 REALTORS® Midyear Legislative Meetings & Trade Expo. During the week ending May 16, more than 8,500 REALTORS® will attend meetings, visit lawmakers and inspire action on Capitol Hill.


Understanding the buyer tax credit!

November 11, 2008

This credit is very not necessarily a true credit so I went to the source, a lender who specializes in first time home buyers and she sent me the following information:

1.      Who is eligible to claim the $7,500 tax credit?
First time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after April 9, 2008 and before July 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs.

2.      What is the definition of a first-time home buyer?
The law defines “first-time home buyer” as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests homeownership history of both the home buyer and his/her spouse. For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit.

3.      What types of homes will qualify for the tax credit?
Any home purchased by an eligible first-time home buyer will qualify for the credit, provided that the home will be used as a principal residence and the buyer has not owned a home in the previous three years. This includes single-family detached homes, attached homes like townhouses, and condominiums.

4.      Instead of buying a new home from a home builder, I have hired a contractor to construct a home on a lot that I already own. Do I 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. In this situation, the date of first occupancy must be on or after April 9, 2008 and before July 1, 2009.

In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.

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 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.

To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.

6.      If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
Possibly. It depends on your income. Partial credits of less than $7,500 are available for some taxpayers whose MAGI exceeds the phase-out limits. The credit becomes totally unavailable for individual taxpayers with a modified adjusted gross income of more than $95,000 and for married taxpayers filing joint returns with an AGI of more than $170,000.

7.      Can you give me 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 $160,000. The applicable phase-out to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 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 $7,500 by 0.5. The result is $3,750.

Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $7,500 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,625.

Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.

8.      Does the credit amount differ based on tax filing status?
No. The credit is in general equal to $7,500 for a qualified home purchase, whether the home buyer files taxes as a single or married taxpayer. However, if a household files their taxes as “married filing separately” (in effect, filing two returns), then the credit of $7,500 is claimed as a $3,750 credit on each of the two returns.

9.      Are there any circumstances for which buyers whose incomes are at or below the $75,000 limit for singles or the $150,000 limit for married taxpayers might not be able to claim the full $7,500 tax credit?
In general, the tax credit is equal to 10% of the qualified home purchase price, but the credit amount is capped or limited at $7,500. For most first-time home buyers, this means the credit will equal $7,500. For home buyers purchasing a home priced less than $75,000, the credit will equal 10% of the purchase price.

10.     I heard that the tax credit is refundable. What does that mean?
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.

For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that taxpayer qualified for the $7,500 home buyer tax credit. As a result, the taxpayer would receive a check for $6,500 ($7,500 minus the $1,000 owed).

11.     What is the difference between a tax credit and a tax deduction?
A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $7,500 in income taxes and who receives a $7,500 tax credit would owe nothing to the IRS.

A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $7,500 in income taxes. If the taxpayer receives a $7,500 deduction, the taxpayer’s tax liability would be reduced by $1,125 (15 percent of $7,500), or lowered from $7,500 to $6,375.

12.     Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
No. The tax credit cannot be combined with the MRB home buyer program.

13.     I live in the District of Columbia. Can I claim both the DC first-time home buyer credit and this new credit?
No. You can claim only one.

14.     I am not a U.S. citizen. Can I claim the tax credit?
Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of “nonresident alien” in
IRS Publication 519.

15.     Does the credit have to be paid back to the government? If so, what are the payback provisions?
Yes, the tax credit must be repaid. Home buyers will be required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed. If the home owner sold the home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven.

16.     Why must the money be repaid?
Congress’s intent was to provide as large a financial resource as possible for home buyers in the year that they purchase a home. In addition to helping first-time home buyers, this will maximize the stimulus for the housing market and the economy, will help stabilize home prices, and will increase home sales. The repayment requirement reduces the effect on the Federal Treasury and assumes that home buyers will benefit from stabilized and, eventually, increasing future housing prices.

17.     Because the money must be repaid, isn’t the first-time home buyer program really a zero-interest loan rather than a traditional tax credit?
Yes. Because the tax credit must be repaid, it operates like a zero-interest loan. Assuming an interest rate of 7%, that means the home owner saves up to $4,200 in interest payments over the 15-year repayment period. Compared to $7,500 financed through a 30-year mortgage with a 7% interest rate, the home buyer tax credit saves home buyers over $8,100 in interest payments. The program is called a tax credit because it operates through the tax code and is administered by the IRS. Also like a tax credit, it provides a reduction in tax liability in the year it is claimed.

18.     If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
Yes. The law allows taxpayers to choose (“elect”) to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.

19.     For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?
Yes. If the applicable income phase-out would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount. Sent by
Christine A. Boles, Mortgage Consultant, Gibraltar Mortgage Services, LLC

If you need further clarification, please post here and I will get answers for you.