We have received an overwhelming number of questions regarding the new "Housing and Economic Recovery Act of 2008" that was recently passed into law. I have done some research and have compiled the following information. I hope you find it helpful.
First-Time Home Buyer Tax Credit at a Glance
Frequently Asked Questions:
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. 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 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. 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. How do I claim the tax credit? Simple! You claim the tax credit on your federal income tax return. No application or forms are required. No pre-approval is necessary; however, prospective home buyers will want to be sure they qualify for the credit under the income limits and first-time home buyer tests. 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 homes, townhouses and condominiums, manufactured homes, and houseboats. I heard 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 federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the tax payer 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). 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. 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. If I'm qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 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. Is there a way for a home buyer to access the credit sooner than waiting to file their 2008 return? Yes. 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 future home 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.
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.
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 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. 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.
How do I claim the tax credit?
Simple! You claim the tax credit on your federal income tax return. No application or forms are required. No pre-approval is necessary; however, prospective home buyers will want to be sure they qualify for the credit under the income limits and first-time home buyer tests.
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 homes, townhouses and condominiums, manufactured homes, and houseboats.
I heard 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 federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the tax payer 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).
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 federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the tax payer 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).
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.
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.
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.
If I'm qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 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.
Is there a way for a home buyer to access the credit sooner than waiting to file their 2008 return?
Yes. 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 future home 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.
Yes. 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 future home 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.
We've all seen the evening news.We've all heard the horror stories about our Nation's current housing market...
Read on...
I thought I would (with permission from Bill Sauneuf of Preview Properties Skagit LLC - CLICK HERE), help bring a little light to the situation we currently find ourselves in. Thanks, Bill!
More good news for the real estate industry!! According to the Office of Federal Housing Oversight's Housing Price Index for the 2nd Quarter of 2008 released August 26th, 30 of the 50 States had positive changes in house prices from June 2007 through June 2008, including our very own Washington State! Only 4 States (Arizona, Florida, Nevada, and California) experienced overall price declines of more than 5 percent. The 20 ranked cities in the United States with the worst price declines over the last 4 quarters were ALL in Florida, California, and Nevada. I really do sympathize with the people of these four fine States. Some of the price declines they have experienced are simply horrible! However, there are 50 States and only 4 with truly bad news for the last year. The rest of the country is simply experiencing a market correction from a rapid increase over the last 5 years combined with some sloppy loan practices that hurt the lending industry. The United States overall had a -1.71% change over the last year (skewed down heavily by the 4 troubled States). However, even with the challenges over the last year, the United States STILL has had a 34.84% increase in home prices over the last 5 years! - How is that supposed to be bad??? Over the last 5 years, Arizona STILL gained 62.68%, Florida STILL gained 54.03%, Nevada STILL Gained 50.81%, and California STILL gained 41.81% despite the losses of the last 4 quarters. It is time for the news media to put away the "Chicken Little - The Sky is Falling" type stories. The truth is that the nation's real estate market is rebounding. The States with a Positive Change in Prices from the 2nd Quarter 2007 through the 2nd Quarter 2008 are: 1) Oklahoma2) Wyoming3) South Dakota4) North Carolina5) North Dakota6) Texas7) West Virginia8) Montana9) South Carolina10) Alabama11) Kentucky12) Mississippi13) Louisiana14) Tennessee15) Maine16) Utah17) Iowa18) Colorado19) Indiana20) New Mexico21) Vermont22) Nebraska23) Pennsylvania24) Kansas25) Idaho26) Georgia27) Arkansas28) Wisconsin29) Missouri30) Washington
More good news for the real estate industry!!
According to the Office of Federal Housing Oversight's Housing Price Index for the 2nd Quarter of 2008 released August 26th, 30 of the 50 States had positive changes in house prices from June 2007 through June 2008, including our very own Washington State!
Only 4 States (Arizona, Florida, Nevada, and California) experienced overall price declines of more than 5 percent.
The 20 ranked cities in the United States with the worst price declines over the last 4 quarters were ALL in Florida, California, and Nevada.
I really do sympathize with the people of these four fine States. Some of the price declines they have experienced are simply horrible! However, there are 50 States and only 4 with truly bad news for the last year. The rest of the country is simply experiencing a market correction from a rapid increase over the last 5 years combined with some sloppy loan practices that hurt the lending industry. The United States overall had a -1.71% change over the last year (skewed down heavily by the 4 troubled States). However, even with the challenges over the last year, the United States STILL has had a 34.84% increase in home prices over the last 5 years! - How is that supposed to be bad???
Over the last 5 years, Arizona STILL gained 62.68%, Florida STILL gained 54.03%, Nevada STILL Gained 50.81%, and California STILL gained 41.81% despite the losses of the last 4 quarters.
It is time for the news media to put away the "Chicken Little - The Sky is Falling" type stories. The truth is that the nation's real estate market is rebounding.
The States with a Positive Change in Prices from the 2nd Quarter 2007 through the 2nd Quarter 2008 are:
1) Oklahoma2) Wyoming3) South Dakota4) North Carolina5) North Dakota6) Texas7) West Virginia8) Montana9) South Carolina10) Alabama11) Kentucky12) Mississippi13) Louisiana14) Tennessee15) Maine16) Utah17) Iowa18) Colorado19) Indiana20) New Mexico21) Vermont22) Nebraska23) Pennsylvania24) Kansas25) Idaho26) Georgia27) Arkansas28) Wisconsin29) Missouri30) Washington
* Reprinted with permission.
On July 30, 2008, President Bush signed HR 3221.
Title V of the law, the "SAFE Act", requires all states in the country to license loan originators using the Nationwide Mortgage Licensing System (NMLS), or hand over their licensing authority to HUD. The legislation gives states 1-2 years to make a good faith effort toward joining the NMLS. The legislation also requires uniformity among states for requirements on background checks, pre-licensing and continuing education, and bonding.
So, what has KMG Mortgage Group and the states of Idaho and Washington done to comply?
You will be happy to know that Idaho and Washington are on the forefront of Loan Originator licensing. Idaho and Washington were among the first eight (8) states to implement the NMLS system (the system now required by the Federal Government).
And, ... Idaho and Washington mandated this BEFORE the Feds said it was required!!!
Idaho's deadline for compliance is Sept 1, 2008. Washington's deadline for compliance is Oct 31, 2008. KMG Mortgage Group has already taken the necessary steps to be listed on the NMLS and is ahead of the curve!
What else has KMG Mortgage Group done in order to guarantee our place in the market and better serve our customers?
Lastly, State and Federal laws are VERY clear on how any financially related company is supposed to maintain client privacy. They have issued mandates and rules that talk about "Privacy Policies" and the like - if you have a credit card or bank account, I'm sure you have received numerous copies of their privacy policy (it usually comes in font too small to read, legal mumbo-jumbo only a licensed attorney can figure out). These policies are simply a listing of what they plan to do with (AKA: who they plan to sell) your private information to.
Don't get me wrong, Privacy Policies are a great thing. When they work. If you don't want your information shared, you need to "Opt Out!"
KMG Mortgage Group's Privacy Policy? We don't sell your information to anyone. We share your information with your loan underwriter in order to get your loan approved. THAT'S IT!
Also, in an effort to maintain the tightest industry standards on privacy, KMG Mortgage Group has, for the passed several years, contracted with a 3rd-party provider who is certified in document destruction. Not only is your private information shredded, it is PULVERIZED BEYOND RECOGNITION! And, in order to decrease our carbon footprint, recycled into toilet paper. Now that's service!
There is a lot going on in the news today. I know that even I, someone who deals with this kind of thing on a daily basis, can get overwhelmed with the constant flow of information. It is my hope that, when you come to KMG Mortgage Group for your new home loan or mortgage, that you can trust we have been proactive in taking the necessary steps to provide you with the best service, maintain your privacy, and (simply put) REALLY know what we are doing.
In my last installment of "A Working Mother..." I mentioned that I have found a few things that help me manage the load. Take what you will, but I hope you find something on this list that we help you in your battle against time:
I have a 3-ring binder called "Mommy's Weekly Menu and Recipe Book" and here's what it's all about:
The book is divided by days of the week (in front) and recipes I have collected over time (in back). Organize the book however you want. But, I have mine as such: Beef, Poultry, Pork, Seafood, Veggies, Starches, Desserts, and Misc.
Just a note: I don't like recipe books. I haven't found a single book with more than just a couple of recipes that my family and I like enough to make more than once. So, I go to www.foodnetwork.com (or, if you're feeling really gourmet, go to www.epicurious.com) and I print out recipes I know we'll love for the long haul. And, if we don't, I can throw out the recipe without wasting a bunch of money on an entire book.
Once a week I go through my collection of recipe cards, magazine cut-outs, and on-line recipes I have printed out, and pick what I want to make for the week. When I've identified what I am going to make, I take the recipe and put it in the front of the book for its appropriate day of the week.
From this list of recipes, I make my weekly grocery list.
You CANNOT believe how simple this makes my grocery shopping! And, I almost never have to go to the store more than once a week because I forgot something. If I do, it's because we have a craving for something not on my list for the week.
I try to do this every Sunday night and do my shopping after Gabrielle goes down for the night. But, let's be honest - I'm a mother, wife, and business owner. So, I'm usually making my list while she eats breakfast Monday morning and dragging her to the store with me.
One last thing: with the cost of gas being so high, I do all my grocery shopping at one store that offers a 10 cent discount for gas with every $100 I spend.
I hope this helps you. Don't be discouraged or overwhelmed. Now that I have my book created and organized, from beginning to end (picking out my menu for the week to making my grocery list), it takes me about 15-20 minutes. A small investment of time considering how much would be wasted during the week trying to think of what to make and having to run to the store to get it.
KMG Mortgage Group sends out recipes cards on a monthly basis. They have become very popular among our list of clients - so popular, in fact, I often receive phone calls asking for additional copies for friends and family. If you would like to receive these recipe cards on a monthly basis, CLICK HERE.
Bon appetit!
We are EXTREMELY proud to announce that we have just concluded a VERY long, VERY intensive audit in order to provide our customers with FHA loans. In today's volatile times, FHA loans are becoming an important part of any lender's loan offerings. With the recent mortgage industry implosion, FHA loans allow for more flexible guidelines with 97% financing.
It's not very often that you find a mortgage broker who is licensed to do FHA loans. So, the fact that we have come this far, and are optimistic that we are just weeks away from being able to offer FHA loans to our clients, makes us extremely proud. Proud that we have clients who believe in us and what we do, and who have played a very important role in getting us here. Proud that we have survived thus far.
We have forwarded our information to the FHA for futher review. Now we play the waiting game. Check back often for FHA updates!
Last night Gabrielle told me I was her best friend. It's what every mother wants to hear. Granted, she's only 2 years old and I'm the only "friend" she really has, but I have to admit that my heart did a little dance.
As with every working mother I know, I struggle to balance being a mother, being a wife, being a business owner, and everything else. So, how can I manage it all? How can I, when I lay my head down at night, be honest with myself and know that I was a wife and mother first, business owner second? I'm relatively new to motherhood, and my perspective may change when Gabby is 15, but I've found a few things that work for me. My friends laugh, my husband teases me, but I know it's in fun and, after all, it seems to be working.
First, I had to let go of the "super mom" mentality. I can't do it all. I won't do it all. And, I won't even pretend. I am a mom first. I stay home with Gabrielle and work while she's taking her afternoon nap. Several of my industry friends tried to warn me. They said my clients wouldn't understand - they'd want me be there at a drop of a hat. But I haven't found this to be true, not in the slightest.
The majority of Kevin's and my business is referral and repeat. And, we have got ourselves locked into a GREAT group of people. Whether I'm working on a project for a customer or referral partner, they understand if I can't do it RIGHT NOW. They respect what I'm doing and have been an unexpected source of support for me.
Second, I had to let go of the guilt of putting Gabby in daycare one day a week so I can go into the office. I needed it - and, not because I was falling behind in my work duties. I needed it mentally. And, though I hear other moms saying (with that all approving nod of their heads - if you're a mom, you know what I'm talking about), "And it's good for Gabrielle, too." I have to admit: I didn't do it for her. I didn't do it to help her "socialize" or play with other kids her age. Though these have been benefits and Barb, her care-provider on Wednesdays, has been a great release for me - besides the fact that Gabby LOVES her - I did it for me. And, I'm okay with that.
I have been a working woman since I graduated from college (gulp!) in 1997. And until recently, I never realized how much I liked to work. I relish Gabby's nap time. Not because I sit and eat bon-bons and watch soap operas (those who know me REALLY well know it's not soaps anyway, but repeat episodes of Harry Potter - it's a sickness, really), but because I get to work on my business. I get to fool with my website, work on marketing ideas, fill out birthday cards for our clients, take continuing ed classes on-line, anything KMG related.
So, for now, let me just conclude that my war against time, and myself, isn't really a war at all - but a battle. A battle of trying to fit everything in that I love to do: being a mom, being a wife, being a business owner. Time and age have taught me my limitations. No one likes to look in the mirror and see the affects of Father Time. But, I just hope and pray that I am able to balance the load with such grace that, at age 15, Gabby still considers me her best friend.
KMG Mortgage Group, LLCIdaho: (208) 664-3600 / Washington: (509) 638-3455Toll Free: (877) 664-4KMGID: MBL-5616 / WA: 510-MB-46354
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