Claim the Home Buyer Federal Tax Credit with IRS Form 5405

Earlier this month, the IRS released form 5405, which allows homebuyers to claim up to an $8000 tax credit for the purchase of a home.  You can get a copy of IRS form 5405 by clicking here or check out the copy embedded below. You can find full details on claiming the tax credit on IRS.gov.

IRS form 5405 home buyer tax credit –

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First Time Home Buyer Federal Tax Credit Extended and Expanded

(UPDATED) FHA to Allow $8K Tax Credit as Downpayment (RETRACTED)

UPDATED 5-14-09 I’ve have learned that the Office of Management & Budget has asked the FHA to (at least) hold off on implementing this program. The FHA’s bridge loan program is only a proposal at this time. I’ll keep you posted…

There is great news for first time home buyers… HUD Secretary Shaun Donovan said that the Federal Housing Administration (FHA) is going to permit its lenders to allow first time home buyers to use the $8,000 tax credit as a downpayment.

Donovan made the announcement today at the National Association of Realtors (NAR) Midyear Legislative conference in Washington, DC. “We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a downpayment,” Donovan said.

According to Donovan, the FHA’s approved lenders will be permitted to “monetize” the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately at the closing table.

Not sure what the cost of the bridge loan to home buyers will be. I have calls out to various lenders/loan officers now to see what I can dig up – I’ll keep you posted.

The Skinny on the $8000 First-Time Home Buyer Tax Credit

You may or may not have heard…there is an $8000 first-time home buyer tax credit some of you may qualify for and may want to take advantage of. In case you missed it, here’s the skinny on it…

Who – Taxpayers who have not owned another principal residence at any time during the three years prior to the date of purchase.

What – The credit is 10 percent of the purchase price of the home, with a maximum available credit of $8,000 for either a single taxpayer or a married couple filing a joint return, but only half of that amount for married persons filing separate returns. And yes, the new version of the first time home buyer credit is actually a “credit”, not a loan.

When – Any home purchased as the taxpayer’s principal residence and located in the United States qualifies. You must buy the home before Dec. 1, 2009, to qualify for the credit. For a home that you construct, the purchase date is considered to be the first date you occupy the home.

Where – The home must be located within the 50 U.S. states or Washington, DC.

How – The credit is claimed on new IRS Form 5405, First-Time Homebuyer Credit, and filed with your 2009 federal income tax return.

There’s definitely some fine print you should read through, but here are two of the more important “fine print” items you should know…

1. You have to repay the credit if the home ceases to be your principal residence within the 36-month period beginning on the purchase date.
2. The credit decreases for buyers who earn between $75,000 and $95,000 for single buyers and between $150,000 and $170,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income—over $95,000 for singles and over $170,000 for couples are not eligible for the credit.

Tip: Here’s how to use the tax credit to your advantage today rather than waiting for it until next year…

As a first-time home buyer, you can borrow the dollar amount of the expected tax credit from a relative today and pay it back when the tax credit is received in 2010. You could use towards the down payment and/or closing costs. FHA and VA loan programs will allow it.

Disclaimer: I am not a tax accountant, lender, lawyer nor work for the IRS. This is not intended to be advice. Speak with a professional tax accountant, loan officer, lawyer or the IRS directly for guidance.

IRS First Time Home Buyer Credit FAQ’s, Is It a Gimmick?

Curious as to how the IRS "first time home buyer credit" works, whether you qualify and how to take advantage of it? There's a good FAQ section over at FederalHousingTaxCredit.com that goes over the "first time home buyer credit" in detail.

Here's an excerpt:

1. 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.

2. 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.

3. How do I claim the tax credit? Do I need to complete a form or application?

Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. No other applications 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.

4. 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 detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats.

For the full set of questions and answers regarding the IRS "first time home buyer credit", check out the FAQ section over at FederalHousingTaxCredit.com.

***NOTE: Before you get too excited about the tax credit, make sure you go through all the FAQ's and then go over to CNNMoney.com to read this post about how it may not be all that it's cracked up to be.

Should You Buy Or Rent In This Market?

As Realtors®  in Loudoun County, in the course of a normal week, we get asked this question at least once, if not two, three or four times…

"With the real estate market being in the sad shape that it’s in, is now a good time to buy or should I wait?"

As members of Trulia Voices, we see this question posed all the time there as well. Here’s one that was just posted a few days ago in the Northern Virginia category:

"With concerns of a recession, should I hold off on buying a town house in the area? Does anyone know when home values will begin to increase? I intend to leave the area after 5-7 years."

According to the National Association of Realtors®, you should "buy now". We’re not here to echo that blanket statement.  In fact, we both agree that it may be the right time for one client to buy while it may be better time for another client to put off buying and rent.

There is no one correct answer for all. It all depends on your personal situation. You have to ask yourself some questions and answer them honestly and realistically.

• Are you buying it as a "home" or as an investment property?
• How long are you planning on living in the home before moving?
• Will your future move most likely be work related or personal?
• Are you willing to gamble on "timing the market"?
• What factors may help influence whether real estate market values go up or down in the near term and mid-term?
• What factors may help influence whether interest rates go down or up in the near term and mid-term?

None of us have a crystal ball, not even the most well respected economists who have been focused on real estate for who knows how many years. But there are certain factors that seem to always affect real estate markets over time (hence the last two questions above).

With the Loudoun County real estate market showing little signs of signicantly improving over the next year, it may be better to rent if you only plan on living in the area for and/or moving within the next 3 years. Rental market rates are low, which is good for renters. And even though they will most likely begin to rise within the next few years, you will probably be moving by that time so you it won’t affect you much, if at all.

This scenario is often the case with active military and government personnel who relocate often.

If you’re planning on staying in the area for 3 to 5 years or more, then you’d probably be better off buying a home. Though interest rates dipped down recently, they’re at historical lows and there’s a greater chance of them being higher in 3 to 5+ years than lower.  And though current rental market rates are low, they will rebound within the next year or two, which will help stabilize and increase real estate values in the mid to long term.

This scenario is often best for those who are planning on being here for a while whether it be because of their job, starting their own business or getting married and starting a family.

As we said, we can’t predict the future so our examples above may be off by a year or two. But you get the point…

Whatever your situation may be and whichever scenario works best for your specific situation, you’re in a good position.  Conditions are favorable whether you buy or rent.

D

Great Loan Opportunity for First Time Buyers in Loudoun County

Beth Perry of Suntrust Mortgage has brought to our attention a great new loan for first time home buyers in Loudoun County.  Here is her description of the loan and its details:

Loudoun County has just released a New "First-Time Homebuyer" program to help increase Home Sales in the area as well as make housing affordable to buyers.  In partnership with Virginia Housing, the County is offering a 1% reduction to their current fixed rate. With this reduction it brings their current 30 year fixed rate as low as 5.375%. 

They offer 100% financing with No Mortgage Insurance or Second Trust  which adds to the homeowners monthly savings.  With the current market changes it allows 100% financing to buyers with a middle credit score of 660 and as low as 620 with 5% down and a maximum Loan Amount of $417,000.

It really opens up the door for first time buyers!  In the past First-Time Homebuyers were limited to Condo’s and lower-priced Townhomes. Now they can even consider a Single Family Home!  This is a limited time offer for these funds until the 30th of June.

For more information or to get in on this program, here is Beth’s contact information:

Office # 703-464-4346

Cell #703-408-7346

Elizabeth.Perry-hauser@suntrust.com

Or you can always respond here and we can answer any questions you might have.