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Saturday, August 2, 2008

FAQ: First Time Homebuyer Tax Credit

August 2, 2008

Lynnsy Logue The REal Estate Lady and Condo CanDo in Charlotte, NC
Frequently Asked Questions
As part of its major housing legislation (H.R. 3221), Congress has created a tax credit to provide an incentive for first-time homebuyers. The $7500 credit will be available for the purchase of a principal residence on or after April 8, 2008 and before July 1, 2009.
The Basics
Who qualifies for the new tax credit?
Only first-time homebuyers are eligible for the credit. A first-time homebuyer is defined as an individual who has not had an ownership interest in a principal residence in the previous three years. The 3-year period is measured as of the date of the purchase of the eligible principal residence.
Is there an income restriction?
Yes. The income restriction is based on the tax filing status of the tax return the purchaser files.
Individuals whose Form 1040 filing status is Single are eligible for the credit if their adjusted gross income is no more than $75,000. Individuals who file a Joint return may have income of no more than $150,000.
Do individuals with incomes greater than the $75,000 or $150,000 limits lose all the benefit of thecredit?
No. The credit has a phase-out. A formula is provided so that the credit is gradually reduced as an individual’s income reaches $95,000 (single return) or $170,000 (joint return). Adjusted gross income above $95,000 ($170,000 joint) will receive no tax credit.
Is the amount of the credit tied to the price of the home?
Yes. The credit is for 10 percent of the cost of the home, up to a limit of $7500.
What’s the definition of “principal residence?”
Generally, a principal residence is the home where an individual spends most of his/her time. The term includes single-family detached housing, condos or co-ops, townhouses or any similar type of dwelling.
Are there restrictions on the location of the property?
Yes. Eligible property must be located in the United States. Property outside the US is not eligible for the credit.
What if the purchaser is eligible for a $7500 credit but owes only $6000 of income tax?
The tax credit is a so-called “refundable” credit. Thus, in this example, the purchaser would receive an income tax refund of $1500. The refundable amount is the difference between $7500 and the amount of tax owed.
Why is the credit sometimes referred to as an interest-free loan?
Unlike most other tax credits, this tax incentive must be paid back. Eligible purchasers will be required to repay the tax credit over 15 years. The statute specifies that the repayment amount will be 6.67% of the credit amount each year. Thus, a buyer who qualifies for the full $7500 credit will repay $502.50 each year. There will be no interest charge on outstanding balances.
Some Practical Questions
How do I apply for the credit?
There is no application or approval process. Eligible purchasers will claim the credit on the appropriate IRS Form 1040 tax return and/or on any special forms the IRS might devise.
So I can’t use the credit amount as part of my downpayment?
Presently, there is no mechanism available for claiming the credit any earlier than the 2008 tax return that will be filed in 2009. Congress tried to devise a mechanism that would allow pre-funding of the credit, but found that pre-funding would require cumbersome processes that would, in effect, bring the IRS into the purchase and settlement phase of the transaction.
So there’s no way to get any cash flow benefits before I file my 2008 tax return?
Any first-time homebuyers who believe they would be eligible for all or part of the credit would be allowed to make adjustments to their income tax withholding (through their employers) or to their quarterly estimated tax payments. Individuals subject to income tax withholding would get an IRS Form W-4 from their employer, follow the instructions on the schedules provided and give the completed Form W-4 back to the employer. In many cases their take-home pay would increase.
If I don’t make an eligible purchase until 2009, do I claim the credit when I file my 2009 tax return in 2010?
Qualified first-time homebuyers who make their purchase between January 1, 2009 and before July 1, 2009 are permitted to make an election to treat the purchase as if it had occurred on December 31, 2008. This election allows them (depending on the timing of the sale) to claim the credit on their 2008 tax return that is due on April 15, 2009. They may also elect to extend their 2008 tax return by filing for an automatic extension. If they file their 2008 return before they have purchased the home, they may utilize this election and file an amended 2008 tax return.
My sister and I are both single and want to purchase a home together. Will we each receive a $7500 credit?
No. The purchase of a residence will generate a tax credit amount that will total up to $7500, no matter how many unmarried purchasers are buying the house.
My sister and I wish to purchase a home together. She previously owned a principal residence but sold it 2 years ago. I’ve never owned a residence. Can I qualify for a partial credit?
Possibly. The statute is somewhat ambiguous. It specifically provides that for a married couple to be eligible for the credit, both must be first-time homebuyers. Similarly, the statute provides that if a married couple files their tax return as Married Filing Separate, then the credit is limited to $3750 each. By contrast, the statute directs the IRS to determine how the credit can be shared when two or more unrelated individuals purchase a home. In that case, the statute does not specify whether all the unrelated purchasers must be first-time homebuyers.
I made an eligible purchase of a principal residence in May 2008. If my brother, also a first-time homebuyer, wishes to move in with me and purchase a partial interest in the home in 2009, will he qualify for the credit, as well?
No. Any purchase of a principal residence from a related party such as a sibling, parent, grandparent, aunt or uncle is ineligible for the tax credit. Since you and your brother are related in this way, he cannot qualify for the credit on any interest in the home that he purchases from you.
I’ll be working outside the US for part of 2008, so part of my income will be eligible to be excluded from tax. I want to buy a home when I come back. Can I disregard my non-taxable overseas income when figuring whether I am eligible for the credit?
No. To determine whether you are eligible for the tax credit, you are required to combine your nontaxable overseas income with any US income you earn in 2008. Thus, if you are single and had $45,000 of non-taxable overseas income and $55,000 of US income, you would be ineligible for the tax credit because your 2008 income ($100,000) exceeded even the $95,000 phase-out amount. If you had $45,000 of non-taxable overseas income and $40,000 US income, you would qualify for a partial credit because your total income would be $80,000. If you had $45,000 non-taxable overseas income and $20,000 US income, you would qualify for the full credit (assuming you met all of the other requirements). Similar rules would apply if you had non-taxable overseas income in 2009 and wished to purchase then.
I live in the District of Columbia and am eligible for the DC Homebuyer Tax Credit. Can I use both credits?
No. You must choose one or the other. Note that the $5000 DC credit has no repayment feature, while the new $7500 credit must be repaid as an interest-free loan.
Repaying the Credit
What is the repayment feature of the credit?
The repayment feature of the credit is similar to a recapture provision: the tax system takes back all or part of a tax benefit. In this case, there is no precedent for repayment of an individual tax credit, so not much is known about how the repayment will occur, how it will be reflected at settlement or on the sales forms or how the IRS will collect and enforce the payments. The repayment is the equivalent of converting the tax credit into an interest-free loan.
What are the terms for repayment?
The credit amount is repaid in increments of 6.67% of the credit amount over 15 years. For individuals who take the full $7500 credit, the repayment will be $502.50 a year. Individuals who claim a credit of less than $7500 will also have a 15-year repayment period and will pay 6.67% of their credit each year. For example, an individual who claims a credit of $6000 will repay $400.20 a year ($6000 x .0667).
When do I make the payment?
The mechanics are not specified. Payments for credits claimed on 2008 tax returns will go into effect for the 2010 tax year. Payments for credits claimed on 2009 returns will go into effect for the 2011 tax year.
What if I sell my house before the 15-year repayment period is complete?
When the person who utilized the credit sells the home, any amount of tax credit that has not been repaid will be due in the year of sale. For example, if an individual still “owed” $4000 in repayments and realized $25,000 of proceeds from the sale, the $25,000 of proceeds would be reduced to $21,000 and $4000 will be remitted to the IRS.
What if there’s very little (or no) gain on the sale and the proceeds won’t cover the repayment
If the proceeds of the sale don’t cover the amount that must be repaid, part of the liability is forgiven. For example, if the individual still “owed” $4000 but the gain on the sale was only $3500, then the seller would not be required to repay the IRS the $500 shortfall.
Are there any other exceptions to the repayment rules?
Yes. If the person who utilized the credit dies before the full credit amount has been repaid, then any balance that remains unpaid is disregarded. Special rules are provided that make adjustments for people who sell homes as part of a divorce before the credit has been fully repaid. Similarly, adjustments are made in the case of a home that is part of an involuntary conversion (property is destroyed in a natural disaster or subject to condemnation by eminent domain by an authorized agency).

Lynnsy Logue The Real Estate Lady and Condo CanDo in Charlotte, NC

Friday, August 1, 2008

More Than Meets The Eye

August 1, 2008
Lynnsy Logue The Real Estate Lady and Condo CanDo in Charlotte, NC

There’s More to My Real Estate Day Than Meets The Eye…
I sometimes wonder if the general public has any idea what a good broker does on a daily basis. Especially during this time of ups and downs, changing mortgage programs, changing market conditions, a media who keeps hammering on all the gloom and doom. Because still there are folks who are getting married, who are down sizing, who are starting their first real job…and there are still folks out there who have a job, good credit and money for a down payment or closing costs. And there are sellers who have fixed up their house or are fixing up their homes to put them on the market. Life goes on.
As a broker, I believe in research. I like delving into a housing project, I enjoy seeing new construction, and I feel empowered when I read about all the angst some of the builders and developers are going through. I feel empowered because I learn something with every article I read. I feel that I can be a better broker if I try to learn as much as I can. Charlotte is an energetic city and growth is happening in every direction. Even in this mess.
Buying or selling a home or doing both is, granted, stressful. So many unknowns. So much waiting. So quiet sometimes. And the more people involved, the harder it is. The sellers get nervous waiting for the inspection reports, the buyer wonders what they have missed asking questions about. Our jobs as brokers are to calm the seas, settle the jitters and work through each issue one at a time. Besides property and research, there is a lot of hand holding…much listening, offering options, being an angel's advocate. It is as one old-timer told me as I was just starting out, you have to be a people person or you won’t make it. I think of myself more as a problem solver. Sometimes all the problem needs is a little patience.
Real Estate is more than signs and locks, comparables and closings, the perceived big bucks and the fancy trappings. It is the daily communications, the hundreds of questions, the paper work, the dollars. The people.
The journey.

Lynnsy Logue The Real Estate Lady and Condo CanDo in Charlotte, NC

Thursday, July 31, 2008

Never Say Never

July 31, 2008

Lynnsy Logue The Real Estate Lady and Condo CanDo in Charlotte, NC

Never say never…Sure as we say that…the never happens…we are foiled. So here goes.It is not my plan to tout my listings on my blog or podcast. My intention is to speak about the market, voice my observations, gather the news and weigh it.
Yesterday at a birthday lunch, a friend asked where I was going afterwards and I replied that I was going to shoot a video at Quail Hollow Estates. In a raised voice she exclaimed that was one of her favorites. That if she ever left our neighborhood, that is where she would go. So she proceeded to tell our whole table about the community: the lakes, the clubhouse, the pools, but most of all the space. There is green space she explained, lots of green space and large mature trees. I just let her go on and on.And that is when I thought to put aside the never and talk about this fabulous condominium I do have listed in Quail Hollow Estates-East. First off, it is important to know where this community is…because it is not readily visible from the street. The entry could well be gated, the buildings look like large homes sequestered behind a brick wall…and bordered by large lakes on one side…all this in the South Park area…just around the corner from the prestigious Quail Hollow Country Club.

The unit I have has been lovingly cared for in every detail. The owners have replaced all four sliding glass door sets and all the rest of the windows. The entire unit has been repainted with neutral colors. New is everywhere: tile in the kitchen, new kitchen appliances, new countertops, new range/oven, new dishwasher, new light fixtures, newer carpeting…and pergo in the joining hall and foyer. The downstairs master suite bath has been remodeled from the studs out. The upstairs full bath has new flooring, new lighting, new paint, new fixtures and hardware. The rooms are large, every one of them. And the windows are many…the light is abundant. The living room, the dining room, the kitchen, and the downstairs master all lead to patios. The kitchen patio is oversized and rolls over to green space. Very park-like. Upstairs master has a trio of new windows overlooking green space. Large walk-in storage runs adjacent to the 3rd bedroom or home office. Carport and utility. Almost 2000 sq. ft for less than $220,000 in one of Charlotte’s Southeast finest. Quail Hollow Estates-East.Check it out:

Customer Full Report

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Lynnsy Logue The Real Estate Lady and Condo CanDo in Charlotte, NC

Wednesday, July 30, 2008

Introducing Quail Hollow Estates in Charlotte

July 30, 2008

Lynnsy Logue The Real Estate Lady and Condo CanDo in Charlotte, NC

Quail Hollow Estates:This is the third condominium built in Charlotte…we’ll begin with the introduction found on their complete website. We are also proving a link to that website.Quail Hollow Homeowners Association is the umbrella of three condominium associations, and forty-one single-family homes, which make up Quail Hollow Estates, the first Planned Unit Development in Mecklenburg County, Charlotte, North Carolina. The membership is comprised of 269 members, with each condominium association having separate documents that govern their individual membership in addition to those documents of Quail Hollow Homeowners Association.
Our 33 gently rolling, park like acres are located within the northwest quadrant of Park Road at its intersection with Sharon Road West. Our office and Club House is located at 7301 Quail Meadow Lane. If you are not familiar with our area, plan your route by using Our Map-see link to site. Our location provides easy access to shopping, schools, Churches and entertainment, while our grounds provide dazzling sunsets reflected in one of our three lakes and spaciousness not found in any other community in Charlotte. Resident’s have the luxury of a quiet moment by the lake, a fast game of tennis, swimming laps in one of our two beautiful pools, or a brisk walk along the quiet streets and jogging paths. The many natural areas are a haven to numerous species of birds for those who enjoy the peace and tranquility watching these ingenious creatures can provide. Location is key: hop to South Park, skip to Quail Hollow Country Club, walk briskly to the Lite Rail, 1.5 miles, and make a quick trip to the airport. Location! More about the community:
Our beautifully appointed clubhouse has a fully equipped kitchen, library, bar, game rooms, meeting room and spacious living room, lending itself very well to the many planned activities centered here.More in detail on Quail Hollow as we visit the interior of an almost 2000 sq ft condominium recently refurbished and on the market. Pictures tomorrow.

Lynnsy Logue The Real Estate Lady and Condo CanDo in Charlotte, NC

Tuesday, July 29, 2008

We Are Moving Out, Slowly. Change Is Coming

July 29, 2008
Lynnsy Logue The Real Estate Lady and Condo CanDo in Charlotte, NC
We Are Moving Out…Slowly. Change is coming…
Some days are a plethora of information…as I read the morning paper…as I check email and the news on the Internet…as I clip articles from the professional periodicals I receive and as I drive into town and wind my way back trying to cover as much of the market as I can. As I stop in the offices of friends in the business…today a well-known and lauded appraiser.
From the morning paper, a journalist writes about the shift from McMansions to smaller houses with more amenities.From a colleague whose business is urban planning, about front porches and neighborhoods designed for walking.From NPR about the trails that bind a city together as in Europe.And driving, I see the cranes at work uptown and know their stories of stops and starts. In one large condo complex, besides selling units, I now see signs for leasing them. And I know the builders have to find some relief and I wonder about the long term effect.I see more signs that read New Price. I have clients who ask about the slowness in the market and I then realize that not everyone is so intensely focused on this market.
My friend, the appraiser, thinks that if Wachovia can stabilize, we will see a shift in our market. And that we might see a slow up tick in the next two to three months and it will not be fast for us here in Charlotte.Washington has finally agreed to pass some help for some folks…North Carolina has drawn its own bill to help homeowners through the process with help from various quarters. And maybe even the media has tired itself out from their rhetoric. We are becoming used to them and searching for data on our own.

Maybe this whole mess will make us stronger. More self-reliant.And then, it is July here. It is the one month I look forward to because there is less traffic, school is out. We can run up and down the roads and streets without having to gauge our departure and return windows. The sign people confirm that it is July too.

They are staying afloat they say…and after all, it is July.

Lynnsy Logue The Real Estate Lady and Condo CanDo in Charlotte, NC

Monday, July 28, 2008

Is it segregation a good thing for 55+?And real estate?

July 28, 2008
Lynnsy Logue The Real Estate Lady and Condo CanDo in Charlotte, NC
More and more…I consider the 55+ communities.In our area, Charlotte, we hear about communities especially for the 55+ demographic. At firs, many years ago, we did not even have that designation…maybe we used the term Active Adult Communities. As I began researching this idea, I came across the acronym NORC. That is the government’s name for Naturally Occurring Retirement Communities.And went further to explain that these communities happen naturally because the homes are good for first timers, good for singles, and good for empty nesters. Usually smaller ranch style homes with modest yards, modest refinements but with sidewalks and adequate parking. When I began defining these communities in Charlotte and talking to the people who lived there, I found quite simply, community. The single and working couples liked the fact that someone was in the neighborhood during the day. The seniors liked it because there were young folks and young families around playing and growing. Of course it was not at all perfect but I would surmise it fit the bill in many ways.
And in my own neighborhood, I like the differences in age, in race, in religion, in orientation, even the grumpy ones have their moments. And maybe that would not suit everyone. Maybe some wear out their joy in crying babies and boisterous teens.Now an increasing number of Americans are choosing to live in age segregated leisure-villes where at least one household member must be 55 or older. No one under 18 may live there-ever. According to industry estimates more than 12 million Americans in the next decade or so will live in communities that forbid young families. This representsa drastic overhaul in our societal living arrangements. And by 2015 those age 50 and older will represent 45% of the U.S. population. I think about my own experiences with the younger generations…from babies to those just starting to receive their ARP magazine… how each of them enrich my life with their new and different perspective.
As I think about the cycles in the real estate world, I think about the afterward as the baby boomers sift through life’s last third. Are the numbers on the rise as great as the boomers to fill the hearths left? How does this growing bubble shake out?
Comments are always welcome!

Lynnsy Logue The Real Estate Lady and Condo CanDo in Charlotte, NC