The (Not Just) First-Time Homebuyer Tax Credit, Expanded & Explained
By Gino Blefari
President and CEO, Intero Real Estate Services
After much speculation by the general populace (and the real estate industry) and much consternation by Congress, the much-anticipated extension of the First-Time Homebuyer Tax Credit has been passed.
Passed, not to mention greatly expanded.
Whether you’re in favor of or opposed to the credit, it’s now been made available to a host of Americans not included in the initial offering, so how can you take advantage of it? Let’s break it down, shall we?
The original tax credit, which was a part of the economic stimulus package put into effect in February 2009, was made available to first-time homebuyers (people who hadn’t owned a home for three or more years) and applied to home purchases that closed on or before November 30, 2009. With the passage of the expansion bill into law, that credit has been extended to purchases made by May 1, 2010 and that are closed prior to July 1, 2010 (that means escrow is closed, all papers signed and keys are in-hand on or before June 30th).
For first-time homebuyers, the credit amount, as it was in the original plan, remains at 10% of the purchase price, up to a maximum credit of $8,000. Originally, to be eligible for the credit, single (not married) purchasers could have an adjusted gross income (AGI) of no more than $75,000/year; married couples with an AGI of $150,000 or less were eligible. Under the new plan, singles with an AGI of up to $125,000 and married couples with an AGI of up to $225,000 are eligible.
For those of you who had previously been ineligible to claim the credit at all because you already owned a home, there may be good news for you. Under the new plan, homeowners who have lived in their homes for 5 consecutive years of the past 8 years are eligible to receive a credit toward a new home purchase. Meant to give a boost to “move-up” buyers, this credit amount can be 10% of the purchase price, up to $6,500. The income caps referenced above are the same.
If you’re a member of the Armed Services and were/will be deployed outside the United States for at least 90 days between December 31, 2008 - May 1, 2010, you may claim the credit until May 1, 2011 (with settlement all wrapped up before July 1, 2011).
One peculiarity of which it’s important to take note: even if you purchase a new home in 2010, you can claim the credit on your 2009 tax return. If you file for an extension of time to file your income taxes, or if you amend your already-filed 2009 tax return, you may include the tax credit (this would put the cash in your pocket much sooner than if you were to claim the credit on your 2010 tax return). Be sure, however, to take heed of the income limitations, as they apply to the year in which you claim the credit.
Finally, it’s important that you understand that if the purchase price of the home exceeds $800,000, no tax credit may be claimed, regardless of your income levels. The credit only applies to primary residences. Investment properties or vacation homes don’t qualify.
Whether the expansion and extension of this credit is the shot in the arm that the US Economy needs remains to be seen, but it’s here, it’s ready and, if you’re planning on purchasing a new home, you should most certainly take advantage of it. Talk to your Intero agent or consult your financial advisor to discuss how this affects YOU.
Showing posts with label exchange. Show all posts
Showing posts with label exchange. Show all posts
Thursday, November 12, 2009
Friday, November 6, 2009
CONGRESS PASSES HOMEBUYER TAX CREDIT
Here's the latest intelligence from Real Estate Economy Watch.
Special Report
CONGRESS PASSES HOMEBUYER TAX CREDIT
--------------------------------------------------------------------------------
The House of Representatives voted overwhelmingly this afternoon to pass legislation containing an extension and expansion of the homebuyer tax credit, completing Congressional action and sending the tax credit to President Obama for his signature, possibly as early as tomorrow.
The $8,000 homebuyer tax credit for first-time buyers, due to expire in 25 days, will be extended through April 30 of next year and buyers will have an additional two months, until the end of June, to close. First-time buyers who are in process of making a purchase will no longer need to worry about qualifying for the $8,000 credit if they close after the November 30 deadline. The new legislation increases the income limit for couples with income up to $225,000, a nearly $55,000 increase above the level in existing law.
For the first time, the new legislation makes buyers who already own a home eligible for a credit. A $6,500 maximum credit will be available to existing homeowners who have lived in their current residence for five of the prior eight years. The legislation limits eligibility for the existing homeowner credit to homes worth $800,000 or less.
Read the full story at http://www.realestateeconomywatch.com/
Special Report
CONGRESS PASSES HOMEBUYER TAX CREDIT
--------------------------------------------------------------------------------
The House of Representatives voted overwhelmingly this afternoon to pass legislation containing an extension and expansion of the homebuyer tax credit, completing Congressional action and sending the tax credit to President Obama for his signature, possibly as early as tomorrow.
The $8,000 homebuyer tax credit for first-time buyers, due to expire in 25 days, will be extended through April 30 of next year and buyers will have an additional two months, until the end of June, to close. First-time buyers who are in process of making a purchase will no longer need to worry about qualifying for the $8,000 credit if they close after the November 30 deadline. The new legislation increases the income limit for couples with income up to $225,000, a nearly $55,000 increase above the level in existing law.
For the first time, the new legislation makes buyers who already own a home eligible for a credit. A $6,500 maximum credit will be available to existing homeowners who have lived in their current residence for five of the prior eight years. The legislation limits eligibility for the existing homeowner credit to homes worth $800,000 or less.
Read the full story at http://www.realestateeconomywatch.com/
Wednesday, September 2, 2009
Mortgage Market Commentary
Rates were GREAT yesterday and yet have IMPROVED today!!
If you’re an honest, law-biding citizen, should you care if the IRS starts comparing mortgage payments and income? What about if you’re a roofer who makes half his income in cash? If Jane Doe claims she makes $2,000 per month on her taxes, yet her mortgage payment is $3,500, should that be a reason for Ms. Doe to be investigated? In yet another story yesterday, it appears that the IRS “will study whether it should make greater use of data on mortgage-interest payments provided to it by banks.” The IRS currently uses such data to send notices to non-filers who it believes should have filed a return. The data could also be used to target for audits individuals who don't file tax returns, or who report less income than they paid in mortgage interest. Of course, if you’re a struggling borrower that is using money out of your savings account, or from Mom & Dad, to make the mortgage payment, you don’t need two guys with badges showing up at your office….
Wells Fargo was in the rumor mill yesterday, not for anything mortgage-related but rather on if and when it is going to pay back the government TARP money. The rumors prompted its CEO to make a statement that Wells will not be selling more stock to pay back its TARP monies but rather use its earnings. Wells, in addition to Citi and Bank of America, have not paid back any TARP money yet. Although $25 or $26 billion is a big chunk of change, Wells has been having its best results in its history and has had made money by cutting its dividend. Let’s hope that they keep buying mortgages!
Yesterday was one of those days when it was better to own fixed-income securities than to own stocks. As it turned out, there were rumors swirling about Wells Fargo (see above), and this caused the herd to shuffle into the proverbial “flight to quality”. Besides, many think that the stock market has gotten a little ahead of itself in recent weeks, and took some profits by selling. Regardless, bonds did well, and rates came down. But as I have said, few are complaining about rates – they are too busy wondering if guidelines will ever loosen up.
What moved rates yesterday? Construction Spending was -0.2% in July, and year-over-year spending is down 10.5%. The Institute for Supply Management’s Factory Index increased to 52.9 in August, better than expected. We also had the National Association of Realtors report that Pending Home Sales were up 3.2%, more than forecast, and once again attributed to lower rates, less expensive houses, and the tax credit (which expires around Thanksgiving). So go figure: better news across the board should have moved the stock market higher and bonds lower, but the reverse happened.
Today we have Factory Orders and the FOMC Minutes, although we have already seen mortgage applications. U.S. mortgage applications were down last week a little over 2%, with purchase apps declining for the first time since early July. Purchase loan applications dipped 1%, and applications to refinance fell about 3%. We also had the ADP employment numbers, which don’t include government jobs, which showed that job losses in the U.S. private sector fell to their lowest monthly level in nearly a year. “Only” 298,000 jobs were cut in August. After this tidbit we find the 10-yr at 3.36% and mortgage securities about unchanged.
Make it a great day!!!
If you’re an honest, law-biding citizen, should you care if the IRS starts comparing mortgage payments and income? What about if you’re a roofer who makes half his income in cash? If Jane Doe claims she makes $2,000 per month on her taxes, yet her mortgage payment is $3,500, should that be a reason for Ms. Doe to be investigated? In yet another story yesterday, it appears that the IRS “will study whether it should make greater use of data on mortgage-interest payments provided to it by banks.” The IRS currently uses such data to send notices to non-filers who it believes should have filed a return. The data could also be used to target for audits individuals who don't file tax returns, or who report less income than they paid in mortgage interest. Of course, if you’re a struggling borrower that is using money out of your savings account, or from Mom & Dad, to make the mortgage payment, you don’t need two guys with badges showing up at your office….
Wells Fargo was in the rumor mill yesterday, not for anything mortgage-related but rather on if and when it is going to pay back the government TARP money. The rumors prompted its CEO to make a statement that Wells will not be selling more stock to pay back its TARP monies but rather use its earnings. Wells, in addition to Citi and Bank of America, have not paid back any TARP money yet. Although $25 or $26 billion is a big chunk of change, Wells has been having its best results in its history and has had made money by cutting its dividend. Let’s hope that they keep buying mortgages!
Yesterday was one of those days when it was better to own fixed-income securities than to own stocks. As it turned out, there were rumors swirling about Wells Fargo (see above), and this caused the herd to shuffle into the proverbial “flight to quality”. Besides, many think that the stock market has gotten a little ahead of itself in recent weeks, and took some profits by selling. Regardless, bonds did well, and rates came down. But as I have said, few are complaining about rates – they are too busy wondering if guidelines will ever loosen up.
What moved rates yesterday? Construction Spending was -0.2% in July, and year-over-year spending is down 10.5%. The Institute for Supply Management’s Factory Index increased to 52.9 in August, better than expected. We also had the National Association of Realtors report that Pending Home Sales were up 3.2%, more than forecast, and once again attributed to lower rates, less expensive houses, and the tax credit (which expires around Thanksgiving). So go figure: better news across the board should have moved the stock market higher and bonds lower, but the reverse happened.
Today we have Factory Orders and the FOMC Minutes, although we have already seen mortgage applications. U.S. mortgage applications were down last week a little over 2%, with purchase apps declining for the first time since early July. Purchase loan applications dipped 1%, and applications to refinance fell about 3%. We also had the ADP employment numbers, which don’t include government jobs, which showed that job losses in the U.S. private sector fell to their lowest monthly level in nearly a year. “Only” 298,000 jobs were cut in August. After this tidbit we find the 10-yr at 3.36% and mortgage securities about unchanged.
Make it a great day!!!
Cost Segregation – Save Taxes and Increase Your Cash Flow
Cost Segregation – Save Taxes and Increase Your Cash Flow
What is Cost Segregation?
Cost segregation is the IRS sanctioned process by which real property components are re-classified as personal property. Re-classifying real property to personal property creates larger depreciation deductions because personal property is depreciated over much shorter periods (5, 7 or 15 years) than real property (27.5 years for residential or 39 years for commercial). And, creating larger tax deductions reduces current taxable income and allows the taxpayer increased cash flow.
Does the IRS approve of Cost Segregation?
Cost segregation studies are accepted and approved by the IRS. There are various IRS rulings, regulations and court cases which provide the basis for cost segregation studies.
For more detailed information, see the below link to the IRS Cost Segregation Audit Techniques Guide revised in March of 2008.
http://www.irs.gov/businesses/article/0,,id=134180,00.html
Who Can Utilize Cost Segregation and When Can It be Implemented?
Any taxpayer can use cost segregation for buildings acquired in prior tax years; when constructing a building; buying an existing one; or, in certain circumstances, years after disposing of one.
A taxpayer that uses cost segregation for a previously acquired structure must file IRS Form 3115, Change in Accounting Method.
How is a cost segregation study prepared?
Typically, the taxpayer engages an accountant and an engineer to analyze the components of the building structure to determine which components can be re-classified as personal property and re-allocated shorter depreciation periods. These professionals analyze architectural drawings, mechanical and electrical plans, and other blueprints to identify and segregate the structural and general building elements including electrical and mechanical components from those linked to personal property.
The following is an estimate of the range of building costs eligible for re-classification through a cost segregation study to personal property resulting in accelerated depreciation.
Apartment Buildings 21-36%
Auto Dealerships 26-39%
Banks 26-38%
Hotel 26-41%
Manufacturing Facilities 26-39%
Medical/Dental Facilities 25-40%
Office Buildings 22-37%
Restaurants 30-45%
Shopping Centers 21-37%
Warehouses 18-31%
What are the benefits of Cost Segregation?
The primary benefit is greater depreciation deductions and increased cash flow.
For example, if a taxpayer acquires a small residential apartment complex for $1.5 million and thereafter obtains a cost segregation study, which re-classifies 35% of the property as 5 year personal property, the taxpayer’s depreciation deductions increase from $54,545 each year to $140,454 each year – an increase of 157%.1
There are, however, other significant benefits:
If a building component needs replacement at some point after the cost segregation, the taxpayer may take, as a deductible loss, the value of the component at the time of replacement.
If real property is reclassified as 5-, 7- or 15-year personal property, it may qualify for bonus depreciation. Bonus depreciation allows an owner to depreciate 50% of the asset immediately.
Cost Segregation and tax deferred exchanges
If a taxpayer obtains a cost segregation study and thereafter exchanges the property, he must remember to be cognizant of the new real and personal property allocation to ensure that any replacement property acquired has the same proportion of real and personal property.
What is the cost to prepare a Cost Segregation Study?
Fees for a cost segregation study are based on the size and type of building and the anticipated time required to complete the study and thus can vary substantially from project to project.
I use OREXCO and refer all my investors to check with them and their tax adviser before making a purchase or exchange. OREXCO’s choice of vendor for cost segregation studies, Tax Strategies Group, LLC, will provide clients with a free analysis to determine whether the taxpayer will benefit from a study. Tax Strategies’ estimate includes the projected increase in depreciation, showing the net present value to the client. Clients should expect to receive benefits between five and ten times the cost of the Study. Tax Strategies’ free estimate allows taxpayers to examine and weigh the benefits of its services without risk or expense. Likewise, Tax Strategies’ studies are backed by a policy of insurance issued through Lloyd’s syndicates providing for payment of taxes or fines imposed as a result of a finding that the study is defective or unsupported.
Tax Strategies Group, LLC may be contacted at (877) 394-3300 and info@tax4cash.com. Further information about Tax Strategies Group, LLC can be obtained at their website, www.tax4cash.com.
OREXCO gratefully acknowledges the participation of Jim Davis, Esq. of Tax Strategies Group, LLC in the preparation of this article.
What is Cost Segregation?
Cost segregation is the IRS sanctioned process by which real property components are re-classified as personal property. Re-classifying real property to personal property creates larger depreciation deductions because personal property is depreciated over much shorter periods (5, 7 or 15 years) than real property (27.5 years for residential or 39 years for commercial). And, creating larger tax deductions reduces current taxable income and allows the taxpayer increased cash flow.
Does the IRS approve of Cost Segregation?
Cost segregation studies are accepted and approved by the IRS. There are various IRS rulings, regulations and court cases which provide the basis for cost segregation studies.
For more detailed information, see the below link to the IRS Cost Segregation Audit Techniques Guide revised in March of 2008.
http://www.irs.gov/businesses/article/0,,id=134180,00.html
Who Can Utilize Cost Segregation and When Can It be Implemented?
Any taxpayer can use cost segregation for buildings acquired in prior tax years; when constructing a building; buying an existing one; or, in certain circumstances, years after disposing of one.
A taxpayer that uses cost segregation for a previously acquired structure must file IRS Form 3115, Change in Accounting Method.
How is a cost segregation study prepared?
Typically, the taxpayer engages an accountant and an engineer to analyze the components of the building structure to determine which components can be re-classified as personal property and re-allocated shorter depreciation periods. These professionals analyze architectural drawings, mechanical and electrical plans, and other blueprints to identify and segregate the structural and general building elements including electrical and mechanical components from those linked to personal property.
The following is an estimate of the range of building costs eligible for re-classification through a cost segregation study to personal property resulting in accelerated depreciation.
Apartment Buildings 21-36%
Auto Dealerships 26-39%
Banks 26-38%
Hotel 26-41%
Manufacturing Facilities 26-39%
Medical/Dental Facilities 25-40%
Office Buildings 22-37%
Restaurants 30-45%
Shopping Centers 21-37%
Warehouses 18-31%
What are the benefits of Cost Segregation?
The primary benefit is greater depreciation deductions and increased cash flow.
For example, if a taxpayer acquires a small residential apartment complex for $1.5 million and thereafter obtains a cost segregation study, which re-classifies 35% of the property as 5 year personal property, the taxpayer’s depreciation deductions increase from $54,545 each year to $140,454 each year – an increase of 157%.1
There are, however, other significant benefits:
If a building component needs replacement at some point after the cost segregation, the taxpayer may take, as a deductible loss, the value of the component at the time of replacement.
If real property is reclassified as 5-, 7- or 15-year personal property, it may qualify for bonus depreciation. Bonus depreciation allows an owner to depreciate 50% of the asset immediately.
Cost Segregation and tax deferred exchanges
If a taxpayer obtains a cost segregation study and thereafter exchanges the property, he must remember to be cognizant of the new real and personal property allocation to ensure that any replacement property acquired has the same proportion of real and personal property.
What is the cost to prepare a Cost Segregation Study?
Fees for a cost segregation study are based on the size and type of building and the anticipated time required to complete the study and thus can vary substantially from project to project.
I use OREXCO and refer all my investors to check with them and their tax adviser before making a purchase or exchange. OREXCO’s choice of vendor for cost segregation studies, Tax Strategies Group, LLC, will provide clients with a free analysis to determine whether the taxpayer will benefit from a study. Tax Strategies’ estimate includes the projected increase in depreciation, showing the net present value to the client. Clients should expect to receive benefits between five and ten times the cost of the Study. Tax Strategies’ free estimate allows taxpayers to examine and weigh the benefits of its services without risk or expense. Likewise, Tax Strategies’ studies are backed by a policy of insurance issued through Lloyd’s syndicates providing for payment of taxes or fines imposed as a result of a finding that the study is defective or unsupported.
Tax Strategies Group, LLC may be contacted at (877) 394-3300 and info@tax4cash.com. Further information about Tax Strategies Group, LLC can be obtained at their website, www.tax4cash.com.
OREXCO gratefully acknowledges the participation of Jim Davis, Esq. of Tax Strategies Group, LLC in the preparation of this article.
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