Senate OKs new tax credit closing deadline

The Senate has amended a bill to give homebuyers who were under contract on a home purchase by April 30 an additional three months to close their escrow and claim the federal homebuyer tax credit.

The current deadline requires buyers to close by June 30 to get the $8,000 tax credit for first-time homebuyers.  Existing homeowners buying a new primary residence are eligible for a $6,500 credit.

The proposal would not have a significant impact on future home sales as the extension would be only for home buyers who already had a contract in hand by April 30.

Lawmakers Consider Home Tax Credit Extension

First time home buyers looking to collect the $8,000 federal income tax credit might still get some time to close on their purchases if a senate amendment unveiled Thursday makes it into law.

Currently as it stands, home buyers must have signed contracts by April 30th and close by June 30th.  The closing deadline, could be pushed back to September 30th.

Lawmakers are not scheduled to vote on the bill until next week at the earliest.


"By extending the transaction deadline, we can ensure that everyone taking advantage of this credit can complete the purchase of their new home" Senate Majority Leader Harry Reid.

Clarification of the California Home Buyer Tax Credit

Signed by Governor Scharzenegger into law on March 25, 2010

Here are the highlights:

• California plans to spend around $200 million dollars to fund this tax credit
• This is twice as much funding as the state's previous home buyer tax credit, which was rolled out in March 2009 and exhausted July 2009 (Hint, Hint only lasted four months)

Who is eligible?

• The home buyer must be a California taxpayer.
• There is no limit on the income of the home buyer.
• The program is available to both existing homeowners and first-time home buyers.
• Current homeowners are eligible only if they buy a newly-built home.
• First-time home buyers are eligible whether they buy a newly-built or existing home.
• To be a first time home buyer, you cannot have owned a home in any state during the three years prior to buying your new home. If you’re married, that applies to your spouse as well.

How much is the credit worth?

• The tax credit is worth up to 5% of the purchase price of the home, or $10K, whichever is less.

How does the home buyer receive the tax credit?

• The payment is credited against the home buyer’s annual CA state income tax.
• The total payment will be spread evenly over three years.
• If you qualify for the full $10K, you’d get up to $3,333 per year – but only if you pay at least that much in annual CA state income tax.
• If your CA state income tax is $4,000 a year, you get a $3,333 credit against that amount, effectively lowering your state income tax to $667. 
• If you owe less than $3,333 per year in CA state income tax, you’ll receive a tax credit only for that amount. The extra will not roll over into the following year’s payment.
• The credit will begin to be applied to the tax year in which the home was purchased. If you buy your home in 2010, the tax credit will begin to be applied against your 2010 taxes.
• You cannot apply the tax credit to your 2009 taxes, even if you file your 2009 taxes after you purchase your home.

What’s the deadline for claiming the credit?

• Buyers of existing homes must close escrow between May 1 and December 31, 2010.
• Buyers of new homes can either:
• Close escrow between May 1 and December 31, 2010, or…
• If they are unable to close escrows during that time, they can reserve a credit by entering into an enforceable contract between May 1 and December 31. They must then file the proper paperwork with the tax board and close escrow by August 1, 2011.

What types of homes are eligible?

• Eligible home types include:
• Single family homes
• Condominiums
• Units in a cooperative project
• House boats
• Manufactured homes
• Mobile homes
• There is no price limit on the home purchase
• A home contructed by the taxpayer is not eligible, since the home has not been "purchased"

Can the new CA tax credit be combined with Federal Home Buyer Tax Credit?

Yes, but the window is very small. You will need to have your contracts signed by April 30, and you must close escrow between May 1st (when the California program begins) and June 30th (when the Federal program ends). The two programs combined could be worth up to $18K in tax credits.

However, remember to think carefully before diving in on a home purchase, regardless of any available tax credits. Buying a home is a major financial commitment. Don’t be lured into making a rash decision because you’re worried about missing out on “free” money. Instead, make sure that buying a home – with or without tax credits – is in your best long-term interests.

562.945.0317

www.endeavorRE.com

$18,000 in tax credits??

The new legislation, AB183, will provide a tax credit up to $10,000 to Californians who buy their first home or a newly constructed home. The tax credit goes into effect on May 1st.

Buyers who time it just right may also be able to qualify for the federal $8,000 first-time home buyer tax credit, for a total of $18,000 in write-offs. The federal tax credit is set to expire soon, though: contracts must be signed by April 30 and deals closed upon by June 30. 


 The new credit will cover home purchases made from May 1, 2010 to December 31, 2010, and will be available to home buyers on a first-come, first-served basis. According to the Governor's website, the tax credit will be applied "in equal amounts over a period of three taxable years."

A $100 million tax credit was approved back in February 2009 but ran out after four months. More than 10,000 Californians claimed the credit. 



Endeavor Real Estate
6518 Greenleaf Ave., Suite 28
Whittier, CA 90601
Direct: (562) 945-0317
Fax: (909) 568-2487www.endeavorRE.com 

Home Buyer Tax Credits- First-time and Move-Up/Repeat Home Buyer Tax credit at a glance

$8,000 First-time Home Buyer Tax Credit at a Glance

• The $8,000 tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
• The tax credit does not have to be repaid unless the home is sold or ceases to be used as the buyer’s principal residence within three years after the initial purchase.
• The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
• The tax credit applies only to homes priced at $800,000 or less.
• The tax credit now applies to sales occurring on or after January 1, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify.
• For homes purchased on or after January 1, 2009 and on or before November 6, 2009, the income limits are $75,000 for single taxpayers and $150,000 for married couples filing jointly.
• For homes purchased after November 6, 2009 and on or before April 30, 2010, single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.

The $6,500 Move-Up / Repeat Home Buyer Tax Credit at a Glance

• To be eligible to claim the tax credit, buyers must have owned and lived in their previous home for five consecutive years out of the last eight years.
• The tax credit does not have to be repaid unless the home is sold or ceases to be used as the buyer’s principal residence within three years after the initial purchase.
• The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500.
• The tax credit applies only to homes priced at $800,000 or less.
• The credit is available for homes purchased after November 6, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, the home purchase qualifies provided it is completed by June 30, 2010.
• Single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.

Tax Tips for 2009 - Good News about Last Year's Taxes

April 15th is less than six weeks away and we all know what that means. If you've yet to visit your accountant or tax preparer, there are some new tax laws, as well as a few old ones you need to know about. But, don't worry. All of the information we're going to share falls under the category of "good news".

Back again for his yearly tax-time advice is Trevor Rice, a certified public accountant and shareholder with Stern, Kory, Sreden and Morgan, AAC in Stevenson Ranch, California. Considering that Rice's appointment book is filling up quickly, we thought it would be a good idea to get him talking about some of the more favorable changes regarding our taxes from last year.


For Individuals
"With a lot of people struggling and finding themselves in survival mode," Rice says, "Our government is responding with help in the form of new tax laws."

According to Rice, the biggest benefit in terms of tax relief is extended to those who are losing their homes to either foreclosure or short sale. He says in the past, the amount forgiven by the lender could have been considered taxable income. Under the current law, up to $2,000,000 of cancelled debt can be excluded from being taxed.

Rice warns there are some provisions to the law. For starters, it ONLY applies to your principal residence. It also ONLY applies to the debt incurred from either buying the house, or from making upgrades and repairs. In other words, drawing from your equity line to pay off a credit card may still be taxed. Rice went on to say if you are deemed insolvent (the value of your total assets is less than your debt), you might be able to exclude ALL of the cancelled debt.

With this and every other tax law we'll talk about, Rice asks you to check your state laws, and consult with your CPA or tax preparer. While they will apply to your federal income taxes, they are not guaranteed to apply to your state taxes.

The next great tax break is for first-time home buyers, as they are eligible to receive an $8,000 refundable tax credit. Before we go any further we should make it clear that anything labeled a "tax credit" is a dollar for dollar reduction of your tax. Anything labeled a "deduction" is something that reduces your tax based on your income tax bracket.

You should also be made aware the term "first-time home buyer" is defined as anyone who has not owned a principal residence in the last three years. However, the provisions for using this credit on your 2009 taxes include entering into a purchase contract no later than April 30, 2010 and closing the transaction by June 30, 2010. It only applies to homes up to $800,000 in cost, and if you are a high-earner you may not qualify.

Along the same lines for homeowners in 2009 is an existing home buyer tax credit. This is a $6,500 credit for anyone owning a home as a primary residence, five out of the last eight years, but is looking to buy a new home. The same deadline dates for first-time home buyers apply to this credit as well. High-earners may also not qualify.

There's some good news, Rice says, for anyone who made energy-efficient improvements to their home in 2009. A $1,500 tax credit (30% of the first $5,000 spent) is available. Some examples would include the installation of energy-efficient windows or doors, insulation, a new furnace, or water heater. In the case of solar energy upgrades, the credit is thirty percent of the total cost, with no limit!

For anyone who has a child in his or her first four years of college, there is a new $2,500 credit. Also new is that forty percent of this credit is refundable. In other words, if the $2,500 credit exceeds the amount of your tax, forty percent of the difference can be refunded. There are a few exceptions to this credit, so make sure you check with your accountant.


For Businesses
"There are a few changes for business taxes this year," says Rice, "But the biggest are for businesses suffering losses." According to our expert, a business that shows a loss in 2009 has the ability to carry that loss as far back as 5 years and recoup taxes paid in any one of those years. The one provision, he says, speaks specifically to that 5th year, when you can only recoup up to 50 percent of the taxes paid. The trick he claims is for your accountant to look for the best year to apply that deduction.


Bonus depreciation is another law that businesses can use to their advantage. This law allows you to deduct fifty percent of the cost of new equipment purchased in 2009. One of the benefits to this deduction is that you can still use it even if your business suffered losses last year. Rice says that this law has been in existence, but it was supposed to expire in 2008. Thanks to our lawmakers, it has been extended to 2009.

Another law that has been extended from 2008 to 2009 is commonly known as "Section 179 Depreciation". This provides business owners the ability to deduct up to $250,000 of new equipment in one year. Prior to 2008, the amount was limited to $125,000.

Rice closed out our discussion by telling us there are many new tax laws, so involving a CPA in the process of filing your taxes is highly important. Equally as important, he says, is to inform your CPA anytime you have something of major importance going on in your life. This would include buying or selling a home, getting married (or divorced), and having a child. Rice says events like these will always affect your taxes in some way. The key is early intervention, as it allows for the most strategic planning.


Trevor Rice has been a practicing CPA for the past twelve years. A graduate of California State University at Northridge, Trevor also holds the title of CVA or Certified Valuation Analyst. He currently practices at Stern, Kory, Sreden and Morgan in Stevenson Ranch, California where he is also a shareholder. Trevor specializes in both individual and business taxation. He can be contacted via email at Trevor@SKSM.com.