Tax Credit

Assault on the Mortgage Interest Deduction

Dec 17th, 2012
by edsmith.
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The big news story this month has been  the perceived “Assault on the Mortgage Interest Deduction” …  It is clear that Americans overwhelmingly oppose any action by Congress that would serve to reduce or (God forbid) eliminate the mortgage interest deduction, which has remained sacrosanct since its inception in 1913.  But as Congress and the White House wrestle with looming deficit reduction challenges, nothing seems safe.

Housing was the leading victim as the overall economy began to falter seven years ago, and it therefore only stands to reason that housing can help lead this economy out of the doldrums. Any tax code change that hinders growth in real estate will serve to hinder growth throughout our entire economy.

The elimination of the mortgage interest deduction would unquestionably weaken demand which would in turn result in lower real estate values. That is to say nothing of the negative impact on millions of American taxpayers with home loans today. Consider that even a modest-sized home loan could result in a $10,000 annual tax deduction for the homeowner.  The tax impact of the elimination of the mortgage interest deduction would be devastating.  Email, write or phone Congress to let them know what you think!

Ed Smith is the the president of RE/MAX Coastal Properties. With 25 years in real estate sales, Ed serves as President-Elect of Emerald Coast Association of Realtors and a Director at Florida Realtor. Ed and wife Terri are ranked among the top RE/MAX teams in Florida, year after year.

Apr 9th, 2012
by edsmith.
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A recent U.S. Tax Court ruling clarified the IRS position that the $1.1 million limit for mortgage interest deduction applies per residence and not per taxpayer as some high-priced homeowners were hoping.

A married homeowner filing jointly can have fullly deductible interest on a mortgage of up to $1,000,000 of acquisition debt and up to an additional $100,000 of home equity debt. If the married couple files separately, each party is limited to deducting the interest on half of those maximum amounts.

The court case came about when two unmarried individuals who owned a home together as joint tenants felt that they were entitled to deduct the interest on $1.1 million of debt each. IRS did not agree with their understanding and neither did the Tax Court. The Court ruled that the limits apply per residence, not per taxpayer even if a home is co-owned by unmarried taxpayers.

The result for the taxpayers in this case was that their deduction was cut in half resulting in much more income tax due. While this situation only affects a few taxpayers, homeowners in this position should have a discussion with their tax professional.

Mortgage Interest Deduction Takes a Hit

Mar 9th, 2012
by edsmith.
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Celebrity psychiatrist Charles Sophy and his S.O. lost in U.S. Tax Court last week. The judge ruled that deductible interest on the two homes that the couple own together be limited to $1.1 million. At issue was whether or not the limits applied per person or per residence. This limit applies even if the co-owners are unmarried and file separate tax returns.  This is the first court ruling on the matter since the IRS issued a memo on the subject in 2009. The court ruling affirms the IRS memo.

Does the new health care law really place a 3.8% tax on real estate sales?

Oct 6th, 2010
by edsmith.
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Yes and no. The government is now referring to this as an “investment tax” that they claim would only apply to “high income” individuals. However, many folks with moderate incomes that have a large capital gain in a given year may suddenly find themselves classified as “high income” individuals. The sale of a second home, or perhaps even the sale of a primary residence could trigger this high income designation.

Contrary to news stories being circulated around the internet, this tax will be computed based upon your profit and not the sales price of a property. Unless scrapped by Congress, this new health care tax law will become effective in 2013.

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$8,000 First Time Homebuyer Tax Credit

Mar 5th, 2010
by edsmith.
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Q: Is there still time to take advantage of the $8,000 first time homebuyer tax credit?  
 
A: Yes there is. The first time homebuyer tax credit was extended last year and now effectively expires on April 30, 2010. However, if you enter into a binding sales agreement before April 30, you may have up until June 30, 2010 to actually close. More details are available at  http://www.federalhousingtaxcredit.com/faq1.php

Will the proposed Cap and Tax legislation require extensive energy upgrades on home resales?

Dec 4th, 2009
by edsmith.
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The National Association of Realtors (NAR) issued a “Myths and Facts” memorandum with regard to HR 2454. Fortunately,  this bill only indicates that federal funding would be offered as incentives for owners of existing properties to voluntarily improve the energy efficiency of their structures:
 
HR 2454 does not require that buildings be energy retrofitted. It does however provide for federal funding to states in order that they may offer financial incentives, such as loans or grants, to property owners who voluntarily improve the energy efficiency of their property. There are guidelines and conditions to meet in order to receive funding and also with regard to exactly how states may spend the money. Some type of verification that the energy improvements have been properly made will be required to help ensure against fraud. 
 
In sum, at least at this point, there are no point-of-sale guidelines or any other such requirements of any sort. Of course, this bill has only been passed by the House. It must still be passed by the Senate and then signed by the President to become law. It may not happen at all. Time will tell.

First Time Homebuyer Tax Credit Extended

Oct 29th, 2009
by edsmith.
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According to news reports this morning, the current $8,000 first time home buyer tax credit will be extended for contracts that are consummated by April 30, 2010 and close by June 30, 2010.   Senate negotiators have reached an agreement  that would allow the first-time home buyer tax credit to not only be extended, but expanded as well.
 
The changes are as follows:
 
The current $8,000 first time home buyer tax credit extended for contracts that are fully executed by April 30, 2010 and must close by June 30, 2010.
 
There will be a new $6,500 tax credit that will be available to some “existing“ homeowners who had to move out of their primary residence because they couldn’t sell.  It appears that this may be applied to those who lived in their home for a “consecutive” 5 years out of the past 8 years.  More details to come.
 
The income limits to qualify for this credit are supposed to be raised by roughly 65 percent on average. To qualify, individual first time homebuyers may now earn up to $125,000 and married first time homebuyer couples may now earn up to $225,000. The current tax credit limits are $75,000 for individuals and $150,000 for married couples.

Q: When does the $8,000 new buyer tax credit expire?

Jun 12th, 2009
by edsmith.
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The new buyer tax credit applies if you are a first time buyer and close on a primary residence between January 1st and December 1st 2009.  However, a bill has just been introduced that would not only raise the tax credit to $15,000, but would also make the credit available on any primary residence purchase, even if not the case of a first time buyer. The bill would also eliminate the current income ceilings of $75,000 for individuals and $150,000 for couples.

First-time homebuyers: How to get the $8,000 tax credit

Feb 17th, 2009
by edsmith.
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This has been a hot topic, so we thought that this article may help answer a lot of common questions:

First-time homebuyers: How to get the $8,000 tax credit

WASHINGTON – Feb. 17, 2009 – How does a first-time homebuyer take advantage of the $8,000 tax credit that President Obama is expected to sign into law tomorrow? It comes with a few rules. According to the most recent analysis, the following rules will apply – though things could change as tax professionals weigh the details:

• The deduction is worth 10 percent of a home’s value up to $8,000, which means all homes worth more than $80,000 could qualify for the maximum amount.

• There is an income limit to qualify. A married couples’ modified adjusted gross income (MAGI) should be under $150,000 and single filers’ MAGI should be less than $75,000.

• Partial tax credits may be available for married couples with MAGI incomes over $150,000 but under $170,000, and single filers with incomes over $75,000 but under $95,000.

• If married couples file separately, they can both claim 5 percent of the home purchase ($4,000 each for a home over $80,000) on their tax returns.

• It’s a tax credit, not a deduction. That means the entire amount goes back to the first-time homebuyer unlike deductions, such as mortgage interest, that are subtracted from gross income before tax is calculated. If qualified for $8,000, the buyer gets $8,000, even if they would not owe that much in taxes otherwise.

• The tax credit applies to homes purchased between Jan. 1, 2009, and Dec. 31, 2009.

• The tax credit does not have to be paid back, providing the homebuyer keeps the property for at least 36 months and resides in the home.

• To qualify as a first-time homebuyer, the purchaser cannot have owned a home within the previous three-year period. However, ownership of a vacation home or rental home does not disqualify the buyer.

• If purchasing a new home, the effective date to receive the credit is the first day the homeowner actually lives in the house. If construction began in 2008, that buyer could still qualify. And if construction begins in 2009 but the owner does not take possession until 2010, the buyer would not qualify.

• The tax credit can be claimed on 2008 income tax forms even though the purchase took place in 2009. A buyer could close on a home the same day that President Obama signs it into law, fill out their income tax forms the next day, and receive the tax credit fairly quickly.

The tax credit is not a downpayment, but it could be used toward a downpayment if first-time homebuyers plan ahead. U.S. taxpayers have money withheld from every paycheck for income taxes. If they owe more tax than the amount deducted, they pay the IRS; if they owe less, they get a tax refund.

By anticipating at least an $8,000 refund in early 2010 when they file 2009 taxes, these buyers could cut down on their tax withholding this year and save the money toward a downpayment. There is one caveat, however: Should they not buy a home in the qualifying period, they would still owe the IRS the money, and reducing their withholding amount could result in a high bill at tax time.

 

© 2009 FLORIDA ASSOCIATION OF REALTORS®

How does the new tax credit work for first time buyers? Can we use the money for our closing cost?

Nov 26th, 2008
by edsmith.
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 There is a formula for determining how much “tax credit” you may actually receive based on your income. The maximum credit is $7,500. It is only a credit on your tax return, so there is no actual cash that can be applied toward your purchase.

 

Worse, you have to pay it back over 15 years (interest free) or when the property is sold. To qualify, neither you nor your spouse may have owned a home in the past three years.