7239 Horton

Virtual Tour of 7239 Horton in Overland Park, KS 66204.  3 Bedroom, 1 bath, ranch, 1 Car Garage, Laundry Room, Big Back Yard, on Cul-de-sac

First-Time Home Buyer Tax Credit

A tax credit of up to $8,000 is now available for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009. Unlike the tax credit enacted in 2008, the new credit does not have to be repaid.

In its efforts to stimulate the economy and revive the housing market, Congress has enacted legislation providing a tax credit of up to $8,000 for first-time home buyers.

But time is of the essence for buyers who want to take advantage of this opportunity. Only homes purchased on or after January 1, 2009 and before December 1, 2009 are eligible.

The Basics of the $8,000 Home Buyer Tax Credit

The tax credit is for first-time home buyers only.

The tax credit does not have to be repaid.

The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.

The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.

Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full 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 January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.

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 the 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. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.

The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.

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.

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 phaseout 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 $8,000 by 0.5. The result is $4,000.

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 $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.

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.

The most significant difference between this tax credit and the one enacted in July of 2008 is that this tax credit does not have to be repaid. Because it had to be repaid, the previous “credit” was essentially an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount. Certain exceptions apply.

Participating in the tax credit program is easy. 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.

Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile 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 tax exclusion for principal residences.

The tax credit is “refundable,.” which 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 the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).

For buyers who bought a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns can amended a 2008 tax return with a 1040X form. You should consult with a tax advisor to ensure you file this return properly.

For buyers that hired a contractor to construct a home on a lot that they already own, they can stilll qualify for the tax credit. 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 January 1, 2009 and before December 1, 2009.

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

Buyers can still claim the tax credit if they finance the purchase of their home under a mortgage revenue bond (MRB) program. 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.

If a buyer lives in the District of Columbia, they cannot claim the first-time home buyer credit in addition to the Washington D.C. first– time home buyer credit.

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.

Note that a tax credit is not the same as a deduction. 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. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.

Home buyers may be able to access the money allocable to the credit sooner than waiting to file their 2009 tax return. 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 then be applied to the downpayment.

Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

Further, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. Some state housing finance agencies, such as the Missouri Housing Development Commission, have introduced programs that provide short-term credit acceleration loans that may be used to fund a downpayment. Prospective home buyers should inquire with their state housing finance agency to determine the availability of such a program in their community.

If a home buyer qualified for the tax credit and buy a home in 2009, they can I apply the tax credit against their 2008 tax return. 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.

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.

 

Seller Financing Assistance

We have several options on this front:

 

Lease with Option to Buy: 

 

This is two contracts tied together.  We combine an Option Contract and a Lease Contract.  The first (the Option Contract) allows a buyer to agree to purchase and a seller agrees to sell a house at some time in the future for a price agreed upon today.  The Lease Contract is basically a rental agreement that sets allows the buyer to move into the house today and pay rent until he actually buys the house.

 

So here’s how it works:  The buyer wants to buy a house, but may not be able to get a loan right now because of bad credit or financial issues.  Or not sure if they like the house, or maybe they are afraid they might need to move and just are not quite ready to buy right now.  But they don’t want to just pay rent, but want to start building up equity in a house while they work out their issues and become ready to get a loan and buy the house.

 

So they find a seller who is willing to let them buy with a Lease Option.  The buyer and the seller agree to the sale of the house at some future date, usually one to two years from now.  They agree to a price of that sale in the future and right it on the option contract.  The buyer pays the seller an “Option” fee based on the set price of the home.  This fee is usually non-refundable, meaning they can’t get it back and will usually be applied to the purchase price when they finally buy.  If they don’t buy in the future, but move out, they loose their option fee.

 

At the same time the buyer and seller also sign a lease agreement allowing the buyer to move in now at a set rental rate.  The buyer will pay rent to the seller until the actual sale of the home takes place or the buyer moves out.  The rent price is usually mostly just rent, although some sellers will apply a small portion of the rent towards the purchase price when the sale actually happens.  That amount is usually around $50 to $100.

 

So the buyer gets to move into a house now, work on fixing the issues that is keeping him from buying right now.  He also starts building up a little bit of down payment toward that purchase price through the option fee and the small portion of rent applied to down payment.  Then when the issues are resolved, the buyer gets a loan from the bank, buys the house from the seller and everyone wins.

 

If the buyer does not resolve the issues and get a loan with in the time frame of the contract, he moves out and gets on with his life.  He does not have to buy the house, but he will loose his non-refundable deposit and the small portions of rent the seller agreed to credit toward down payment.

 

 

 

 

 

In some instances, the seller may agree to extend the lease option, but may want more money down. 

 

In other instances, if the lease to own buyer has been very good about paying his lease fee on time, every time for a 2 or 3 year period, but is still unable to obtain traditional financing through a bank or mortgage company, the seller may be willing to move them up to a seller financing situation.

 

More info

 

·        wikipedia

·        real estate abc

·        real estate .com

 

Seller Financing

 

This is just like any traditional purchase where a buyer agrees to buy and a seller agrees to sell a house at a set price.  But the seller becomes the bank instead of bringing in an outside loan from a bank or mortgage company.  The buyer gets true ownership of the home, is responsible for everything, upkeep, taxes, insurance, repairs, everything, and the seller gets the buyer’s promise to pay the loan back.

 

This is great for a buyer who can’t quite get a bank loan, but could be risky for the seller if they buyer does not pay.  So you will usually find that a seller will only agree to Seller Financing if the buyer has a substantial amount of money to put down on the house and usually at higher interest rates that they would normally get from a bank or mortgage company. 

 

The length of the loan may also be shorter than what a traditional lender would give and their may be something called a balloon payment due in 6 months, a year or 5 years or sometime into the loan where the seller expects to get paid in full.  This would happen through the sale of the home to a 3^rd person or a bank refinance.

   

            More info

 

·        Financial Web

·        nolo

·        Mortgage Loan.com

 

 

Seller Financing

If the seller carry’s a the financing for a buyer – what happens.

First of all the buyer / borrower needs to sign a promissory note and a mortgage document or deed of trust depending on your state that is filed in the county records.  The borrower and the lender are bound by the agreements set forth in both documents.

If the borrower fails to live up to the agreement, the lender could take the property back through foreclosure, just as if the lender was a big mortgage institution.  It will go through the legal proceedings and be sold at foreclosure auction to pay off the debt or purchased back by the lender if the sale fails to get a high enough bid.  The lender then will offer the property for sale. It becomes and REO of a private individual rather than of the bank.

In both case the sale at the auction or the sale later after the property being taken back is to cover the debt and what ever does not get covered can be filed against the borrower as a deficiency judgement.

If you sell the property and use a land installment contract or a contract for deed, it would still be treated as an owner finance loan and requre foreclosure proceedings.

To read the Inman Article, click here

Home Inspections

As a wholesaler and a realtor who works with out of state buyers that often times buy properties sight unseen, I think home inspections need to be looked at.

Many times the buyer wants to have the property manager or the contractor take a FREE looksie around the house.  Sure this saves the buyer $300 to $400 in up front fees, but this could cost you $1000’s later on.

1) Having the contractor do the inspection – think about it - the contractor wants to repair the house and the more repairs he puts down the more money he makes. 

I used to work for a company that listed for banks and they always had the company I worked for do the bid on what needed to be done clean out wise, yard mowing wise, etc.  As long as the bill came to less than $500, it was paid no questions asked and no proof that the work needed to be done – so suprise – every house needed at least $500 in clean out & yard mowings, event the pristine homes that were perfectly clean and trimmed.

On the other hand, let’s think about having the property manager look at the property.  That’s someone like me – I am a realtor and unlike many realtors, I know quite a bit about what’s what on a house, but I would in no way pretend that I am a home inspector and would know all the little things that need to be checked.

Then think about it – our contractor was asked to look at a property for a buyer.  So that’s what he did – 5 minute walk through – and on the surface, the house looked great.  He did not check for termites, look in anywhere for leaks, did not inspect the roof, or the mechanicals, he did a FREE 5 minute walk through and on the surface, everything did look good. 

His comment was, now if they want to pay me for my time, I would do a full inspection with write up.  And a full inspection would take 2-3 hours, not 5 minutes.

So please – out of state investor, hire a home inspector – or define with your person “taking a look” what they are doing.  You may find that “taking a look” for free is worth exactly what you paid for it – NOTHING.