Thanks for visiting The Mortgage Reports. To stay absolutely current on mortgage markets and important guideline changes, be sure to take my free daily email alerts.

November 6, 2009, Congress modified the $8,000 First-Time Home Buyer Tax Credit program, turning it from a "first-time" buyer program into an "everyone" Home Buyer Tax Credit program.

Under the program's new terms, first-time buyers are eligible for up to $8,000 in federal tax credits and long-time homeowners get up to $6,500. A "long-time" homeowner, according to the IRS, is someone who has used a home as a primary residence for at least 5 consecutive years dating back to 2002.

This is an important qualifier for existing homeowners.

If you plan to claim the Home Buyer Tax Credit in 2010, here's what you need to know.

First, you need to know that the tax credit is federal. Therefore, it doesn't matter whether you live in Cincinnati, Chicago, or anywhere else -- if you file U.S. taxes, you've cleared the first eligibility hurdle.  All you have to do is file.

Second, you need to know your deadlines.

In order to claim the Home Buyer Tax Credit, you must be under contract for your new home no later than April 30, 2010 and you must be closed on your new home between the dates of November 7, 2009 and June 30, 2010.

So long as you meet these dates, you've cleared the second eligibility hurdle.

Third, you need to know what types of home buys are specifically excluded by the IRS.

1. The home may not be acquired from a mother, father, spouse, or child
2. The home may not be acquired from an entity in which you're a majority owner
3. The home may not be acquired by gift or inheritance
4. The home's primary buyer must be at least 18 years of age
5. The home's purchase price may not exceed $800,000
6. The home must be meant for use as a primary residence

These rules ensnare just a small percentage of home deals so if you meet the eligibility requirements as shown above, you're probably going to be in the clear.  It's at this point, though, that you should double-check just how much of the credit you're eligible to claim.

The maximum tax credit as authorized by Congress is for up to $8,000 for first-time home buyers and for up to $6,500 for long-time homeowners.  Not everyone will get access to the full amount.

For one, the tax credit is limited to 10% of the home's purchase price.

• A $300,000 home is eligible for up to $8,000 in credits to first-timer home buyers and up to $6,500 to long-time homeowners
• A $50,000 home is eligible for up to $5,000 in credits to first-time home buyers and up to $5,000 for long-time homeowners

And secondly, the tax credit is tied to the home buyer's income levels.

If you are a single-filer with the IRS and your income is less than $125,000, you will receive the maximum credit. Same for joint-filers with income below $225,500. In households where income exceeds those limits, however, the home buyer(s) is subject to a tax credit haircut.

The credit reduction is 5% for each additional $1,000 in claimed income.

• Single-filer earning $125,000 : 100% of the tax credit
• Single-filer earning $126,000 : 95% of the tax credit
• Single-filer earning $127,000 : 90% of the tax credit
• Single-filer earning $145,000 : 0% of the tax credit (i.e. no credit)

The math is the same for joint-filers:

• Joint-filers earning $225,500 : 100% of the tax credit
• Joint-filers earning $226,500 : 95% of the tax credit
• Joint-filers earning $227,500 : 90% of the tax credit
• Joint-filers earning $245,500 : 0% of the tax credit (i.e. no credit)

At this point, you know your own eligibility, and the size of your credit. However, you may still have questions. Thankfully, the IRS thought of that with their Bizarre Scenario FAQ.  It's worth a look.  The FAQ includes scenarios for couples getting married, divorced and separated, plus "flipping" and various "renting homeowner" scenarios.

Here's how to claim the your Home Buyer Tax Credit.  There's just 2 very basic steps:

1. Review the eligibility requirements above -- just in case!
2. File your 2010 taxes online

Or, if you want to receive your tax credit faster, consider filing an amended 2009 return. This is especially helpful for self-employed home buyers and other folks that typically file between April 15 and the October 15 deadline.

That's it! Just be sure that you'll use your new home as your "main home" for at least 3 years. Otherwise, the IRS will reclaim your refund.

Lastly, please remember that I am a loan officer -- not an accountant. Consult a tax professional for tax matters, mmmm-kay?  You can also use me for rate quotes. anytime.

UPDATE: The First Time Home-Buyer Tax Credit was expanded and extended. The information in this post may be inaccurate. Read the updated First-Time Home Buyer Tax Credit post instead.

The $8,000 First-Time Home Buyer Tax Credit expires November 30, 2009.  In order to claim the tax credit, the IRS requires that you've closed on or before that date.  December 1, 2009 is too late.

But that doesn't mean that first-time home buyers should target November 30, 2009 as a closing date. In fact, there may not be a worse day in 2009 on which to try to close on a home.  The optimal time is during the week of November 16, 2009 and the earlier in the week, the better.

To understand why, let's start with the fact the home sales volume is through the roof, and then we'll look at a calendar.

New Home Sales data and Existing Home Sales data has been unexpectedly strong and first-time buyers account for nearly 1/3 of all transactions.  Furthermore, the Pending Home Sales reports tell us sales volume is still growing.

It's reasonable to infer, therefore, with home prices still low and with mortgage rates still down, buyer interest will stay strong all the way through the November 30, 2009 deadline -- especially as trade groups trumpet "The End Of The Incentive". There will be a mini-panic as everyone tries to close in time to claim their $8,000.

This is when it starts to get messy.  Check out the calendar.

• November 30, 2009 is the Monday after Thanksgiving Weekend.
• November 28-29, 2009 is a weekend.  No closings on weekends.
• November 27, 2009 is the Friday after Thanksgiving -- an unofficial holiday.
• November 26, 2009 is Thanksgiving -- an actual holiday. No closings.
• November 25, 2009 is the day before Thanksgiving -- a national "half-day".

So, that backs up the November 30, 2009 first-time home buyer tax credit deadline by 6 days to November 24, 2009 -- a Tuesday.

And I won't tell you that closing on Tuesday, November 24, 2009 is a bad idea, but I've been in this business long enough to know that there's always a chance for something to go wrong. And when it does, you're going to want some sort of a cushion between the "the problem" and "the deadline".

Maybe it will be a problem on your final walk-through, or with your mortgage loan documents.  But as the buyer of a home -- the largest purchase you've made in your life to-date -- the last thing you're going to want is to feel pressured into signing your paperwork because of worries over an $8,000 tax credit.

Therefore, don't mess.  Schedule your closing for the week of November 16, 2009, instead.  That way you'll have plenty of time to work through whatever needs to be worked out in connection with your home and your home loan. With a closing set for the 16th, you'll meet your tax credit deadline with plenty of time to spare.

That said, the clock is winding down.

If you haven't started your home search yet or aren't under contract, it's seriously time to get cracking.  Purchase closings come 60-day default.  Sometimes, you can negotiate them down to 45 days or 30 days, but, for the most part, 60 days is the standard-- especially if you're buying a short sale.

Counting backwards from November 16, therefore, renders September 17, 2009 the last day to go under contract and be sure of collecting that $8,000 tax credit.

It's a scant 24 days from now.

If you're a first-time home buyer and just starting your research, I encourage you to call or directly with your First-Time Home Buyer Tax Credit questions about how the program works.  The IRS has a straight-forward form you can read but it may not be "personal" enough to address your particular needs.

Sometimes, you need the human element, though.

I am an active loan officer with a lot of experience with first-time home buyers.  I wouldn't write about topics like this if I didn't want to talk about it with you.  When there's something I can do for you, .

UPDATE: The First Time Home-Buyer Tax Credit was expanded and extended. The information in this post may be inaccurate. Read the updated First-Time Home Buyer Tax Credit post instead.

The $8,000 First-Time Home Buyer Tax Credit expires December 1, 2009.

If you're planning to claim use the credit and haven't started looking for a home, your clock is officially ticking.  You must be closed on your new home on or before December 1.

Because purchase closings come 60-days standard, therefore, your $8,000 is in jeopardy unless you go under contract prior to October 2, 2009.  That's 73 days from now.

Use it or lose it, as they say.

The First-Time Home Buyer Tax Credit is part of the American Recovery and Reinvestment Act of 2009.  In it, Congress authorized a first-time homebuyer tax credit of up to $8,000 for home buyers meeting certain qualifying criteria.  The program's goal was to stimulate entry-level home purchases and, by most measures, the plan has been successful.

First-time home buyers accounted for about one-third of all home resales in May.

Now, the IRS definition of "first-time home buyer" may be different from what you expect.  According to the IRS, a first-time home buyer is anyone who has not owned a "main home" in the last 3 years with "main home" defined as a home in which a person has lived "for most of the time".  Main homes can include traditional homes, houseboats, trailers and other residence types.

For couples -- married or otherwise -- both home buyers must be first-timers to be tax credit-eligible.

Moreover, not every first-time home buyer is eligible for the $8,000 First Time Home Buyer Tax Credit.  Some notable exclusionary cases include first-time home buyers who:

• File taxes separately and whose adjusted gross income exceeds $95,000
• File taxes jointly and whose adjusted gross income exceeds $170,000
• Acquire property from a mother, father, spouse or child
• Acquire property from an entity in which they're a majority owner
• Acquire the home by gift or inheritance

And then, the First-Time Home Buyer Tax Credit may not deliver the full $8,000.

The tax credit is limited to 10 percent of the home's purchase price the it also diminishes as home buyer income rises.  Tax credit phase-outs start at $75,000 for homebuyers filing separately and $150,000 on joint returns.

Assuming you qualify, though, the good news is that it's easy to claim your tax credit.

1. Buy and close on a new, "main" home before December 1, 2009.
2. Submit IRS Form 5405 with your 2009 tax returns in April 2010.

That's it.

Meanwhile, the program does come with some gotchas.  For example, If you sell your home, or cease to use it as your "main home" within 36 months of purchase, the IRS will require a full payback.  There are only a few allowable exceptions to this policy and you shouldn't count on being granted one.

Not moving in the next 3 years? Don't worry about it.

If you're a first-time home buyer and have questions, you're welcome to anytime. I'll answer your questions and if I don't lend in your state, I can refer you to loan officers that I trust who do.

And lastly, please don't just take my word for it on tax issues. I am a loan officer and not an accountant. I can offer basic guidance, but paying a professional for expert advice is often the right way to go. If you don't have an accountant you trust or you're not using the free filing and tax audit services of TurboTax or something, call or email me for a recommendation.

UPDATE: The First Time Home-Buyer Tax Credit was expanded and extended. The information in this post may be inaccurate. Read the updated First-Time Home Buyer Tax Credit post instead.

As part of the American Recovery and Reinvestment Act of 2009, Congress authorized a first-time homebuyer tax credit of up to $8,000.  The $8,000 credit replaced the $7,500 tax rebate program that was included in 2008's stimulus program.

In the two months since its rollout, the $8,000 first-time homebuyer tax credit has provided a veritable boost to the housing market in places like Mount Adams and Oakley in Cincinnati, and Southpost Corridor in Chicago, to name a few.  First-time home buyers now account for more than half of all home sales, according to an industry report.

One of the biggest reasons why the $8,000 tax credit is working is because, unlike its 2008 counterpart, the government doesn't require the 2009 version of its tax relief plan to be paid back over time. First-time home buyers in 2009 can claim their credit and never look back.

And best of all, the credit is automatic -- there's no extra paperwork to sign with your real estate agent and no additional disclosures between the buyer and the seller.  First-time homebuyer tax credits are tax events, not housing ones.

But even though some real estate agents and mortgage lenders position and market the $8,000 credit as a universal program, it's important to know that not every first-time home buyer is eligible.  The IRS definition of "first-time homebuyer" may be different from what you expect.

According to the IRS, a first-time homebuyer is anyone who has not owned a "main home" in the last 3 years where "main home" is defined as a home in which a person has lived for most of the time. It can include traditional homes, houseboats, trailers and other residence types.

The IRS also defines what it means to be a first-time homebuyer with respect to couples.

Based on the IRS definition, there's no clean way for spouses or soon-to-be-married types to "cheat the system" and take an undue $8,000 in tax relief. This is because the $8,000 First-Time Homebuyer Tax Credit requires both homeowners to be first-time homebuyers in order to claim the credit.

Furthermore, the IRS instructions show that not every first-time homebuyer will be eligible to claim an $8,000 tax credit.  Some notable, exclusionary cases include first-time homebuyers who:

• File taxes separately and whose adjusted gross income exceeds $95,000
• File taxes jointly and whose adjusted gross income exceeds $170,000
• Acquire property from a mother, father, spouse or child
• Acquire property from a corporation/partnership in which they're a majority owner
• Acquire the home by gift or inheritance

And for some buyers, the available credit may fall short of the promised $8,000.

First of all, the value of the First-Time Homebuyer Tax Credit is limited to 10 percent of the home's purchase price.  A home purchase price of $75,000, therefore, caps the first-time homebuyer's tax credit at $7,500.

And secondly, the value of tax credits diminish as homebuyer income rises.  Tax credit phase-outs start at $75,000 for homebuyers filing separately and $150,000 on joint returns, up to the program's adjusted gross income limits of $95,000/$170,000.

The worksheet portion of The First-Time Homebuyer Credit tax form is above.

It's pretty straight-forward in that there are just 10 fields of entry.  Fill in the form and you'll know how large (or small) of a First-Time Homebuyer Tax Credit to which you're entitled.  To claim your credit:

• Buy and close on a new, "main" home before December 1, 2009
• Submit Form 5405 with your 2009 tax returns in April 2010

That's it.

If you do qualify for the credit,beware of the program's gotchas, though. For example, If you sell your home, or cease to use it as your "main home" within 36 months, the IRS will require a full payback with only a few allowable exceptions.  Not moving in the next 3 years? Don't worry about it.

And lastly, don't just take my word for it on tax issues. I am a loan officer and not an accountant. I can offer basic guidance, but paying a professional for expert advice is often the right way to go. If you don't have an accountant you trust or you're not using the free filing and tax audit services of TurboTax or something, call or email me for a recommendation.

UPDATE: The First Time Home-Buyer Tax Credit was expanded and extended. The information in this post may be inaccurate. Read the updated First-Time Home Buyer Tax Credit post instead.

As part of the American Recovery and Reinvestment Act of 2009, Congress authorized a first-time homebuyer tax credit of up to $8,000.  The $8,000 credit replaces the $7,500 tax rebate program that was included in last year's stimulus.

The $8,000 tax credit is a boon to first-time home buyers in places like Cincinnati or Chicago because, unlike its 2008 counterpart, the government doesn't require the 2009 version of its tax relief to be paid back over time. Buyers closing on their home in 2009 can take the credit and never look back.

Calculating your eligibility is pretty simple, too.

See the snippet from IRS Form 5405 above.  It's the worksheet portion of the First-Time Homebuyer Credit.  There are 10 fields of entry.  Just fill in the 10 fields and -- voilà -- you've figured out your tax credit (or lack of tax credit, as the case may be).  What's nice about the 5405 form, though, is that on the IRS website, the form comes standard with 3 pages of instructions about how the First-Time Homebuyer Credit works and details about who is (and who is not) eligible.

The IRS definition of "first-time homebuyer" may be different from what you expect.

According to the IRS, a first-time homebuyer is anyone who has not owned a "main home" in the last 3 years. It defines "main home" as a home in which a person has lived for most of the time. It can include traditional homes, houseboats, trailers and other residence types.

The IRS defines what it means to be a first-time homebuyer with respect to couples.  Based on its definition, there's no clean way for spouses or soon-to-be-married types to "cheat the system". Because both owners must be considered first-time homebuyers in order to claim the $8,000 credit, the IRS stymies tax filers that try to get crafty to take a tax credit when a tax credit may not be due.

Furthermore, the IRS instructions show that not every homebuyer will be eligible to claim an $8,000 credit.  Some notable, exclusionary cases include first-time homebuyers who:

• File taxes separately and whose adjusted gross income exceeds $95,000
• File taxes jointly and whose adjusted gross income exeeeds $170,000
• Acquire property from a family member
• Acquire property from a corporation/partnership in which they're a majority owner
• Acquire the home by gift or inheritance

And for some buyers, the available credit may not even reach the full $8,000 limit.

The first reason why the full $8,000 may be out of reach is because the rules of the First-Time Homebuyer Tax Credit limit the credit to 10 percent of the purchase price.  A home purchase price of $65,000, therefore, gets capped at $6,500. The second reason is because the amount of the First-Time Homebuyer Tax Credit starts to phase out as homebuyer income levels rise.

Tax credit phase-outs start at $75,000 for homebuyers filing separately and $150,000 on joint returns.

If you're lucky enough to get the First-Time Homebuyer Tax Credit, though, don't start singing "Let's Go To The Mall". keep in mind that the IRS will make you repay that credit in full if the home you bought ceases to be your main home within 36 months of purchase.  This is, again, to prevent people from gaming the system.

There are a few notable exceptions to the repayment rules, however.  For one, provided that you sell your home to a non-relative, the tax credit repayment is limited to the amount you gain on the sale.  An accountant can help you with the math on that.

In the weeks leading up to the passage of the stimulus plan, there were a lot of first-time home buyer tax credit ideas floating before Congress and most of them picked up, then subsequently twisted, by newspapers and bloggers.  And, unfortunately, Google's job is to store information -- not determine whether or not it's accurate.  If you're still seeing stories about a $15,000 tax credit, you know exactly what I mean.

In the end, Congress could only pass one "official" program and it's the one detailed herein. There's a lot of misinformation out there on the Internet so, if nothing else, let Form 5405 can be your "official documentation".

Also, don't just take my word for it on tax issues. I am a loan officer and not an accountant. I can offer opinion and guidance, but paying a professional for expert advice is often the right way to go. If you don't have an accountant you trust or you're not using the free filing and tax audit services of TurboTax, call or email me for a recommendation.

The Housing and Economic Recovery Act of 2008 passed into law this week with a lot of positives for the American people.

Some of the law's highlights include:

• Up to $7,500 in purchase "credits" for first-time homebuyers
• Conforming loan limit increases to $625,000 in high-cost areas
• Expansion of the FHA to "save" delinquent homeowners
• Earmarked funds for local governments to buy and restore blighted homes and neighborhoods

But the new housing law isn't all good news for Americans.  Buried deep on page 690 of the 694-page law, for example, is an important change to the Capital Gains Exclusion rule that could cost some home sellers across the country a pretty penny.

Not surprisingly, the story isn't getting much coverage.

Read the rest of this entry »

Most homeowners know that interest paid on a mortgage can be tax-deductible.  But, with careful planning, a homeowner can increase his 2005 tax deduction.

Because mortgage interest is paid in arrears, the payment due January 1, 2006 is really for interest accumulated throughout December 2005. 

And it's only tax-deductible in the year in which it was paid.

So, rather than make the mortgage payment on January 1, 2008, a homeowner can send the payment in a few days early (i.e. in 2005) and render that payment tax-break-eligible in 2005 -- the year in which it was paid.

As always, consult your tax professional before making any tax planning decisions.

Magazines everywhere talk about the "Housing Boom" and how it is impacting Real Estate investors. 

There is a secondary effect, though, and it hits "regular people". 

As property valuations rise, homeowners can lose an enormous savings in the form of tax-free gains from the sale of their home.

Current federal tax law allows an individual to escape taxation on the first $250,000 of profit from a home sale provided it has been a primary residence at least two of the previous 5 years; the limit doubles to $500,000 for couples filing jointly. 

Any excess profit is a taxable capital gain that cannot be avoided, even by reinvesting in a new home.

So, if a home increases in value and the homeowner sells after the run-up, he may be subject to a substantially larger tax liability than if he had sold before the escalation.

Says Deerfield-based CPA Don Schaffer, "The bottom line is: if you want to make the most of the tax laws, don't hold your home too long in a rapidly increasing market."

Before doing anything, though, be sure to contact your estate planner or tax consultant for help in navigating the murky waters of federal tax law.