I am always amazed that we humans need to hear the same thing over and over again before we understand something. The top ten towns in Massachustetts have been featured on Chronicle and in the Boston Globe and every year and it’s the same ten towns more or less, but, they all have something in common….location. Proximity to Boston or the water is key. These towns Arlington, Newton, Melrose, Brookline, Milton, Brighton are centrally located, have vibrant downtowns and have easy access to public transportation and highways. It’s a simple principle– location. Homes in a convenient location sell and retain value better than anything else. Commuting an hour each way into Boston or driving past 495 gets old very quickly, especially after a long winter. Commuting is also expensive; sky high gas prices, threatened toll hikes and an impending gas tax only add to the drudgery. Duxbury, Plymouth, Merrimac were also in the teflon town category, why? The water….buyers like to be close to the water. While Merrimac is not on the ocean it is on the Merrimac River with a revitalized downtown.. Rounding out the list is Sherborn and Plainville, Sherborn with it’s beautiful rolling hills, horse farms and expensive real estate not too far out is a no brainer, but Plainville, I’m not so sure about. I am going to take a drive and see what I am missing.
This article was printed in yesterday’s Wall Street Journal and I feel has the most comprehensive explanation of the homebuyer credit.
MARCH 18, 2009
Cracking a Valuable Homebuyer Credit
· By TOM HERMAN
The recently enacted economic-stimulus law contains an unusually attractive new tax break for many homebuyers — if they can only figure out how it works.
The new law sweetens a provision known as the “first-time homebuyer credit.” In essence, if you meet certain qualifications, such as buying a home from Jan. 1 through Nov. 30 this year, you may be eligible for a tax credit of as much as $8,000. You also have a choice of claiming the credit on your federal income-tax return for 2008 or 2009. A credit is typically more valuable than a deduction, since it eliminates your taxes on a dollar-for-dollar basis — and in this case, you may get it even if you don’t owe any taxes.
But Congress made the homebuyer-credit fine print so devilishly tricky that many Americans are likely to have to pay an expert for help in deciphering it. “We’ve had numerous calls because people are confused,” says Claudia Hill, owner of Tax Mam Inc., a Cupertino, Calif., tax-services firm. “The problem is when things are this complicated, many people don’t get the benefits that Congress intended for them.”
Internal Revenue Service officials recently issued a revised form and instructions. Even so, Nancy Hays of H&R Block Inc., the Kansas City, Mo.-based tax-preparation company, describes the credit as “crazy complex.”
Here are answers from IRS officials and tax advisers to some questions about the credit.
Q: Who can claim the credit?
A: In general, the IRS says you may be eligible if you bought your main home, located in the U.S., after April 8, 2008, and before Dec. 1, 2009 — and if you (and your spouse, if you’re married) haven’t owned any other main home during the three-year period ending on the date of purchase. That means you might be eligible even if you owned a home for many years before that period.
However, there are numerous other qualifications.
Q: How much is the credit?
A: That depends on when you bought the home and other factors, such as your income and the home’s price.
If you bought during the 2008 period and qualify for the credit, the maximum credit is generally $7,500. But it’s only half that amount if you’re married and filing separately from your spouse. Even though it’s called a credit, it’s really an interest-free loan. You generally have to repay it over a 15-year period, without interest, in 15 equal installments, the IRS says. (There are several exceptions to this repayment rule. We warned you this was tricky.)
The rules are more generous if you buy a new home during the 2009 period and meet all the qualifications. In that case, the maximum amount generally is $8,000, or half that amount if you’re married filing separately. More important, you don’t have to repay the credit at all unless that home “ceases to be your main home within the 36-month period beginning on the purchase date,” the IRS says.
Initially, there was some confusion about whether the $8,000 maximum credit would apply if someone bought a home in 2009 and chose to claim the credit on their return for 2008. It’s now clear the $8,000 maximum limit does indeed apply, says Mark Luscombe, principal tax analyst at CCH, a Wolters Kluwer business. Naturally, though, “this doesn’t help people who actually bought homes in the 2008 qualifying period, and who are limited to a $7,500 credit that must be repaid,” he says.
Additionally, the credit generally is limited to the amounts mentioned above — or 10% of the home’s purchase price, whichever is less. For example, if you bought a new home this year for $70,000, the maximum amount of the credit would be limited to 10% of that amount, or $7,000.
Q: How do the income limits work?
A: You may be eligible for the full amount of the credit if your adjusted gross income, with certain modifications, is $75,000 or less — or $150,000 or less if married and filing jointly. However, the credit begins to disappear, or “phase out,” if your income exceeds those amounts. You can’t claim the credit at all if your income is $95,000 or more, or $170,000 or more if married and filing jointly, the IRS says.
Q: What if I built a new home? How does that work?
A: You are considered having purchased it “on the date you first occupied it,” the IRS says.
Q: I own more than one home. How do I figure out which is my “main” home? And does it have to be a house?
A: The IRS says your main home is “the one you live in most of the time.” No, it doesn’t have to be a house. It can be “a house, houseboat, house trailer, cooperative apartment, condominium, or other type of residence.”
Q: Are there are other qualifications?
A: Yes. You can’t claim it if your home is located outside the U.S. You also aren’t eligible if you’re a nonresident alien, if you inherited the home or got it as a gift, or if you acquired it from a “related person,” such as your spouse, parents or grandparents.
Q: Will the credit help me if I don’t owe any tax?
A: Yes. The credit “may give you a refund” even if you owe no tax, the IRS says.
Q: What form do I use?
A: Form 5405. The IRS recently revised it and posted it on its Web site (www.irs.gov), along with instructions. Dean Patterson, an IRS spokesman, says “programming is being done to electronically process Form 5405” to claim the $8,000 credit for homes bought in 2009. The IRS “will be able to process these returns electronically beginning March 30” this year, he says.
Q: Where do I put the credit on my Form 1040?
A: Line 69.
Q: I’ve already filed my return for 2008. Can I still claim it? If so, how?
A: Yes. File what’s known as an “amended” return. Use Form 1040X, and attach Form 5405.
Q: If I buy this year, should I claim the new credit on my 2008 or 2009 tax return?
A: That can be tricky, and you may need to consult a tax pro. In general, most people who buy this year and qualify for the new credit probably will want to take it on their tax return for 2008, says Tax Mam’s Claudia Hill. “They’ll get their money more quickly,” she says.
But some people might be better off claiming the credit on their 2009 returns. These would include eligible homebuyers who buy this year, whose financial circumstances changed during 2009 and who might qualify for a larger credit on their returns for 2009 than the prior year. An example would be someone whose income was too high to get any of the credit for 2008 but who recently lost his job and thus would be eligible for the full credit on his 2009 return, to be filed next year.
A colleague and I went on a listing call last week. We met a wonderful older woman, Mrs. A, ready to move onto the next chapter of her life. She was bright, energetic and quite witty. We were the second brokers to be called in and while we were going through the house she pointed out what needed to be repaired, what rooms needed wallpaper and carpeting removed. We finished our tour and sat down to go over our thoughts on the house. We complimented her on how well she understood what should be done before her house went on the market. Actually, we were quite impressed. To tell you the truth we didn’t really think we were going to be hired. Somewhere during conversation, Mrs. A started expressing concerns about how this work would get done. We realized that the first broker told Mrs. A exactly what needed to be done, offered some suggestions about how to accomplish this task, but never took charge to put Mrs. A at ease. A word of advice to sellers; not all agents are the same. We immediately pulled out our BlackBerries and wrote a list of contractors, handy men, electricians, and painters to facilitate this move. We also told Mrs. A. that as part of our service (because Realtors are in a service business) we will bring over a design person to oversee the process and be with her through the ordeal. The first 5 hours are at our expense. Oftentimes a house only needs a little rearranging, bookshelves decluttered to show off hidden treasures, drapes removed or added, pictures rehung. Fairly easy tasks can be overwhelming to a seller. Most clients understand the staging process, but don’t understand how to accomplish this undertaking. When you hire a Broker to represent you in the sale of your home, that Broker has an obligation to help you attain the highest price for your home. I say this over and over; houses in the best condition sell for more money in less time than houses that do not show well. We live in a world of working couples taking care of their children and their parents; they hire us to make the process easier not harder.
I am happy to say that Mrs. A hired us; the handyman has fixed a few a few odds and ends and removed some old carpeting; and to our surprise found wood floors in perfect condition. The designer removed draperies in the living room and reused them in the sunroom. She also instructed the painter to neutralize 2 bedrooms to a creamy soothing color and paint all the upstairs trim the same soft white. A cleanout company emptied the basement of 27 years of collectibles. An electrician added GFI outlets where needed. Mrs. A has maintained the house beautifully for the past 27 years so all that was needed was a little cosmetic updating. Our contribution to the makeover – $500.00, Mrs A.- $1215.00, a higher selling price-fabulous!
Just a recap of the real estate activity in the past month. Inventory is creeping up, there are 197 single family homes listed for sale. Up from 140 or so in January but certainly nowhere near 2006 levels when inventory peaked at about 400 homes. 30 homes have gone under agreement in the past 30 days. 5 homes under 600 thousand. 8 homes in the 600’s, 6 homes in the 700’s, 3 in the 800’s, 3 in the 900’s, 4 homes 1 million to 1.1 million and lastly 1 home priced at 1.650. Notice the trend? The high end is languishing, but let me say there are some absolutely stunning homes in fabulous neighborhoods on the market. I believe this market will turn and when it does buyers will have an opportunity to buy wonderful homes at great prices.