Updated Nov. 6, 2009, to reflect new legislation — more to be added soon

New Legislation
New legislation, the Worker, Homeownership and Business Assistance Act of 2009, which was signed into law on Nov. 6, 2009, extends and expands the first-time homebuyer credit allowed by previous Acts. The new law:

Extends deadlines for purchasing and closing on a home.
Authorizes the credit for long-time homeowners buying a replacement principal residence.
Raises the income limitations for homeowners claiming the credit.
Under the new law, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010 and close on the home by June 30, 2010. For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return.

For the first time, long-time homeowners who buy a replacement principal residence may also claim a homebuyer credit of up to $6,500 (up to $3,250 for a married individual filing separately). They must have lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the replacement home is purchased.

People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after Nov. 6, 2009. The credit phases out for individual taxpayers with modified adjusted gross income (MAGI) between $125,000 and $145,000 or between $225,000 and $245,000 for joint filers. The existing MAGI phase-outs of $75,000 to $95,000 or $150,000 to $170,000 for joint filers still apply to purchases on or before Nov. 6, 2009.

General Information
Homebuyers who purchased a home in 2008 or 2009 may be able to take advantage of the first-time homebuyer credit. The credit:

Applies only to homes used as a taxpayer’s principal residence.
Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.
The credit is claimed using Form 5405, which you file with your original or amended tax return.

For 2008 Home Purchases
The Housing and Economic Recovery Act of 2008 established a tax credit for first-time homebuyers that can be worth up to $7,500. For homes purchased in 2008, the credit is similar to a no-interest loan and must be repaid in 15 equal, annual installments beginning with the 2010 income tax year.

For 2009 Home Purchases
The American Recovery and Reinvestment Act of 2009 expanded the first-time homebuyer credit by increasing the credit amount to $8,000 for purchases made in 2009 before Dec. 1.

For home purchased in 2009, the credit does not have to be paid back unless the home ceases to be the taxpayer’s main residence within a three-year period following the purchase.

First-time homebuyers who purchase a home in 2009 can claim the credit on either a 2008 tax return, due April 15, 2009, or a 2009 tax return, due April 15, 2010. The credit may not be claimed before the closing date. But, if the closing occurs after April 15, 2009, a taxpayer can still claim it on a 2008 tax return by requesting an extension of time to file or by filing an amended return. News release 2009-27 has more information on these options.

Questions and Answers
More information is available in the question and answer section.

Related Items

IR-2009-83, First-Time Homebuyer Credit Provides Tax Benefits to 1.4 Million Families to Date
The American Recovery and Reinvestment Act of 2009: Information Center

Like the $8000 First-Time Homebuyer Tax Credit, the program is geared toward helping those who have never owned a home or have not owned a home in the last three years. However, the MCC program has the additional benefit of also being available to second-time or subsequent homebuyers in certain targeted areas, which include Scott County, Madison County, and Clark County.

What is the MCC and How do I Get the Benefit of It?
The MCC is a tax credit is applied directly to the homebuyer’s tax liability after all other credits and deductions, including the standard mortgage interest deduction have been applied. A tax credit differs from a deduction; whereas a deduction reduces the amount of the buyer’s income that is subject to income tax, a tax credit is a direct reduction of the amount of taxes owed. The MCC can be used in combination with the $8000 First-Time Homebuyers Tax Credit.

Unlike the $8000 credit, the balance of which can be paid directly to the buyer if the credit is greater than their total tax liability, the MCC is a non-refundable tax credit. This means that in order to insure the full benefit of the MCC’s tax credit, the buyer should reduce the amount of taxes being withheld from their regular paycheck. In other words, since the credit with the MCC cannot be refunded the taxpayer if they have paid in more taxes than they owe after the MCC’s tax credit is applied, the taxpayer should reduce the amount of tax they are paying in during the tax year, so that a tax liability will exist at the end of the year. This will have the added benefit of giving the buyer more available cash in their paycheck during the year. The withholding change is simple to implement, and the credit has a three-year carryover, so the ideal withholding amount can be determined gradually.

Who Qualifies for the Tax Credit?
Kentucky residents who are first-time homebuyers or who have not owned a home in three years, in any county. However, for buyers in Scott County, Madison County, and Clark County, among other areas, the credit is also open to those who currently own a home or have owned one in the past three years.

The buyer’s income must fall within Kentucky Housing loan income limits. Limits vary by county and family size, but here are some key examples:
• In Fayette, Woodford and Jessamine Counties, up to $65,000 for a one or two person household, or up to $74,750 for a household of three or more.
• In Scott and Clark Counties, up to $78,000 for a one or two person household, or up to $91,000 for a household of three or more.
• In Jefferson and Oldham Counties, up to $61,500 for a one or two person household, or up to $70,725 for a household of three or more.
• In Madison County, up to $69,960 for a one or two person household, or up to $81,620 for a household of three or more.
How Do I Apply to Receive an MCC?
The application is completed with and submitted by your mortgage lender. A qualified applicant pays a fee of $500, which is submitted with an application and purchase contract, which allows the lender to reserve funds for the specific buyer. The fee may also be paid by other parties, and in the case of VA loans must be paid by a party other than the buyer. Reservations for MCC’s begin July 1, and closings can begin approximately August 2.

What Kind of Homes Can Be Purchased When Using an MCC?
• New construction or existing homes qualify.
• The home can have a total sales price of up to $258,000.
• The home must be used as the buyer’s primary residence during the years that the tax credit is used.
• There is no set expiration date by which the home must close. The MCC is reserved for the buyer when the application, contract, and fee are received and the application approved.
Can the MCC be used with the $8000 First-Time Homebuyer Tax Credit?
Yes, a homebuyer can take advantage of both credits.

Can the MCC be used with any kind of loan?
The MCC can be used on any loan type (conventional, FHA, VA). However, the MCC cannot be used with Kentucky Housing loans.

Can I Contract to Purchase a Home Now, and Reserve an MCC after July 1st?
For homebuyers who have been pre-qualified and are deemed eligible, Ball Homes will accept a purchase contract that includes a contingency on the buyer’s successfully acquiring an MCC reservation on or after July 1st, with a closing date of August 2nd or later.

A new $5,000 State Tax Credit goes into effect July 24th for homebuyers who purchase a newly constructed home and are not first-time homebuyers. (In certain Kentucky counties, buyers who already own a home or have recently owned a home may also be eligible for a Mortgage Credit Certificate– click here to learn more).

$5000 State Tax Credit Eligibility
This non-refundable tax credit is available to purchasers who close on a newly constructed or never-occupied home between July 24, 2009 and July 24, 2010 and do not claim the $8000 First Time Homebuyers Tax Credit on their federal tax return.

The credit does not apply to the purchase of an existing home that has been occupied, but only to newly constructed homes or homes that have never been occupied (such as a model home or completed home in a builder’s inventory).

The credit is non-refundable, which means it is used to offset a tax liability to the state of Kentucky, but cannot result in a tax refund if the tax credit exceeds the amount of tax liability.

This credit is offered exclusively by the state of Kentucky on a homebuyer’s state tax return.

To qualify, the new home buyer must use the home as a principal residence. They must also live in the home for at least two years, or the tax credit must be repaid to the state.

A total of $25 million dollars in program funds are available on a first-come, first-served basis until July 24, 2010 or until the funds run out, whichever is first.

How the Credit is Claimed
The tax credit may be claimed by qualified buyer submitting a completed application via fax within seven calendar days of closing on a new home. The application form is provided by the Kentucky Department of Revenue.

A website will be established by the Revenue Department to explain the tax credit to the public and keep track of the available program funds available in relation to the $25 million dollar cap.

Persons successfully claiming the credit will be provided a form by the Kentucky Department of Revenue that can be used in filing their state tax returns.

The tax credit applies to purchases made between January 1, 2009 and December 1, 2009, and is available to qualifying first time home buyers. Unlike the previous tax credit, this one does not have to be repaid, except in instances where the home is sold within three years. The tax credit is fully refundable, which means that if the amount of the credit is greater than the amount of income tax owed by the homebuyer, the difference will be paid to the homebuyer as a tax refund when a tax return is filed.

Click here to download a printable brochure about the credit.
The following information about the Tax Credit has been provided by the National Association of Homebuilders:

Who is Eligible
•The $8,000 tax credit is available for first-time home buyers only.
•The law defines a first-time home buyer as a buyer who has not owned a home during the past three years. For married taxpayers, both spouses must meet first-time buyer criteria to be eligible.

Income Limits
•Home buyers who file as single or head-of-household taxpayers can claim the full credit if their adjusted gross income (AGI) is less than $75,000.
•For married couples filing a joint return, the income limit doubles to $150,000.
•Single or head-of-household taxpayers who earn between $75,000 and $95,000 are eligible to receive a partial first-time home buyer tax credit.
•Married couples who earn between $150,000 and $170,000 are eligible to receive a partial first-time home buyer tax credit.
•The credit is not available for single taxpayers whose AGI is greater than $95,000 and married couples with an AGI that exceeds $170,000.
Effective Dates for the Tax Credit
•First-time home buyers would receive a $8,000 tax credit for the purchase of any home on or after January 1, 2009, and before December 1, 2009. To qualify, you must actually close on the sale of the home during this period.
Tax Credit is Refundable
•A refundable credit means that if you pay less than $8,000 in federal income taxes, then the government will write you a check for the difference.
•For example, if you owe $5,000 in federal income taxes, you would pay nothing to the IRS and receive a $3,000 payment from the government.
•If you are due to receive a $1,000 tax refund from the government, your refund would grow to $9,000 ($1,000 plus $8,000 from the home buyer tax credit).
•Buyers can take the tax credit in their 2009 tax return.

Types of Homes that Qualify for the Tax Credit
•All homes, whether single-family, townhomes or condominium apartments will qualify, provided that the home will be used as a principal residence and the buyer has not owned a home in the prior three years. This also includes newly-constructed homes.
No Payback Provisions
•The tax credit does not have a payback provision, unlike the previous $7,500 tax credit. However, if you sell the home within three years, the entire amount of the credit is recaptured on the sale.

Using the Credit as a Downpayment
•Kentucky Housing loans now allow borrowers who plan to take the tax credit to get an additional loan of up to $4,500 to be used toward the downpayment and/or closing costs, repayable when the tax credit is received. Read more . . .
•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 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.

Getting the Credit Funds Quickly
• Homebuyers who are qualified for the tax credit and buy a home in 2009 can apply the tax credit against their 2008 tax return. 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 (Maximum Adjusted Gross Income) 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.
Taxpayers buying a home who wish to claim it on their 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult with a tax professional to determine how to arrange this.

There is Another Answer … a Short-Sale!

What is a Short Sale? In a nutshell, a Homeowner cannot obtain enough money in a sale to satisfy the amount owed to a Lender so the Lender agrees to sell the property at a value less than or “Short” of the amount due and may even agree to forgive the difference to avoid foreclosure. In this event, the Buyer obtains a property at a good value, the Seller is released of the financial burden and stress and the Lender recovers a portion of the loan with the ability to write off the loss. A win-win for all.

Whether you are a Buyer, Seller or an Investor, a Short Sale can result in direct financial gains. Interested?

Contact us to learn more about this unique opportunity in the Real Estate market.
Ron Humes 859-621-1276 / ronhumes@lexre.com

The answer is - YES WE DO!

In fact, Lexington Real Estate Services (LRES) offers Full-Service real estate listings at reduced commissions and at variable rates. LRES has an office policy that we do not offer Limited-Service listing packages because Limited-Service listings are not viewable to the public on the MLS. This means that the Seller would potentially be missing hundreds or even thousands of internet leads. This also ensures that our clients receive the best in real estate services regardless of the low cost.

Q: How can LRES do this? A: LRES does not have nor does it need lavish office accomodations and numerous office staff. This overhead may have been necessary years ago but not in today’s market. We simply pass this saving along to our clients. Another perk - we come to you! Whether you are a Buyer or a Seller, we come to you. Isn’t that just a part of good service?

Q: Isn’t it good to have office personnel to answer the phones? A: Let me ask you a simple question. Who would you rather answer your phone call or that of someone wanting information on your home; (1) a non-licensed person who has never been in your home and is barred from answering certain questions and is available Mon-Fri from 9 - 5, or (2) the same Agent / Broker that tookk the photos, gathered the data, completed the paperwork and entered the listing to the MLS who is 24/7?

Just remember LRES when you are looking for Full-Service Real Estate without the Full-Service Cost! Contact us for a Free Consultation. We can come to your home or perhaps buy you a cup of coffee at your favorite cafe’.

Contact Owner & Principal Broker, Ron Humes to learn more or to schedule an appointment: 859-621-1276 / ronhumes@lexre.com