January 29th, 2010
Waiting to purchase your new home will cost you thousands of extra dollars as the office of Housing and Urban Development (HUD) implements several changes for loans guaranteed by the Federal Housing Authority (FHA).
Starting April 5th, what you will need to pay, out of pocket, for up-front mortgage insurance for loans guaranteed by the FHA will increase from 1.75% to 2.25%. Therefore, if you are purchasing a $200,000 home with a $7,000 down payment, the up-front mortgage insurance will increase by $965. This additional cost is typically financed in the final loan amount so the impact to a monthly payment will be minimal but overall, the increase is still an extra cost you, the borrower, that you will need to incur both upfront and monthly. Not too many of us have the luxury of spending money unnecessarily.
As part of these changes will also be the amount of money that a seller can return to the buyer from their sale proceeds. That amount will be reduced from 6% to 3%. So, if you need seller concessions in order to purchase your home, you will only be able to get half of what is currently allowed. The reduction in these "seller concessions" can increase the amount of cash you will be required to pay at closing by $6,000 for a home purchase of $200,000.
These FHA changes will occur shortly before the April 30 deadline for the Home Buyer Tax Credit and just days after the March 31 expiration of the Federal Reserve Board's mortgage backed securities purchase program (which has kept home loan rates artificially low for over a year).
You only have until the end of March to submit your mortgage application and avoid these extra expenses.
Therefore, don't wait to purchase your new home! Call me today so I can help make your dream come true without you having to pay more to achieve that goal.
Energy and Home Improvement Tax Credits
January 22nd, 2010
Why not start off the New Year by making some improvements to your home that will save you money and, at the same time, allow you to get some tax breaks. You can make energy-conscious purchases that will provide tax benefits when filling out you tax returns for 2009. The new law provides tax credits for making your principal residence more energy efficient and for buying certain energy efficient items.
Residential Energy Property Credit – The new law increases the energy tax credit to 30% of the cost of all qualifying energy-efficient improvements to existing homes. It also raises the maximum credit limit to $1,500 for improvements placed in service in 2009 and 2010. Qualified improvements include adding insulation, energy efficient exterior windows, energy-efficient heating, air conditioning systems, and more. A similar credit was available for 2007, but was not available in 2008. Ask your tax professional about the IRS' issued guidance, deadlines, and other important qualifying factors for this and the following tax credit.
Nonbusiness Energy Property Credit – You can receive a tax credit of 10% of the purchase price of qualified energy-efficient products installed in the taxpayer's main home in the United States. The tax credit for home improvement purchases is limited to $500 and applies to the total credit you can claim for all years combined.
Homebuyer Tax Credit Rules. Do you qualify?
November 14, 2009
The Homebuyer Tax Credit
The Worker, Homeownership and Business Assistance Act of 2009 signed into law on November 6, 2009 has extended and enhanced the first‐time
homebuyer tax credit and is effective currently.
Highlights of this credit include:
• First‐Time Homebuyer: A refundable credit equal to the lesser of 10% of the purchase price or $8,000; refundable meaning the tax credit
can offset your entire federal income tax liability (including Alternative Minimum Tax) with any leftover amount being refunded to you.
• Existing Homeowner: A refundable credit equal to the lesser of 10% of the purchase price or $6,500. To qualify, you must have lived in
your current home consecutively for 5 of the previous 8 years.
• The purchase price cannot exceed $800,000.
• The tax credit is for homes purchased before May 1, 2010. If there is a written binding contract in effect before May 1, 2010, you have an
additional 60 days to close (before July 1, 2010).
• Single taxpayers with income up to $125,000 and married taxpayers with income up to $225,000 qualify for the full amount of the credit.
The credit begins to phase‐out with income above those limits and is phased out completely for single taxpayers with income over
$145,000 and married taxpayers over $245,000.
• You are considered a first‐time homebuyer if you did not own a home during the 3‐year period before the purchase of the home. If you
are married, both you and your spouse must pass the 3‐year test.
• The home you are purchasing must be in the United States and used as your primary residence. Vacation homes and rental properties do
not qualify for the credit.
• You are not eligible for the credit if you are under age 18 at the time of purchase, can be claimed as a dependent by another taxpayer or
if you buy the home from a close relative, for example, a spouse, parent or child.
• You will be required to repay the credit if you sell your home within 3 years of purchase.
• Special rules extend the credit an extra year for military personnel on qualified official extended duty outside of the U.S. Also, the
recapture provisions are waived under certain circumstances.
• You can treat the 2009 purchase as having been made during 2008 and claim the credit on your 2008 tax return. Any 2010 purchase can
be claimed on your 2009 return. You must attach documentation of the purchase to your tax return.
Key Facts/Figures:
Credit Amount – First Time Homebuyer Lesser of 10% of purchase price or $8,000 ($4,000 if married filing separately)
Credit Amount – Existing Homeowner Lesser of 10% of purchase price or $6,500 ($3,250 if married filing separately)
Purchase Price Limitation $800,000
Income Limits Phase‐Out Single $125,000‐145,000/Married $225,000‐245,000
Date of Purchase (with written binding contract) Before 5/1/2010
Date of Closing (for purchases contracted before 5/1/2010) Before 7/1/2010
Effective Date of New Law 11/6/2009
Please contact your tax professional for additional guidance on how this credit may affect you.
BlumShapiro is the largest regional accounting, tax and business consulting firm based in Connecticut. The firm serves a wide range of
privately held companies across many industries, as well as government and non‐profit organizations and provides non‐audit services
for publicly traded companies. BlumShapiro, with a staff of nearly 300, has offices in West Hartford and Shelton, with satellite offices in
Westport and Waterbury, CT and New York.