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PLEASE NOTE!

THE FOLLOWING IS INFORMATION ON THE
NEW CALIFORNIA "STATE HOMEBUYER
TAX CREDIT" BILL THAT HAS BEEN SIGNED
BY THE GOVERNOR.

INFORMATION ON THE CURRENT FEDERAL
TAX CREDIT FOLLOWS AFTER.

C.A.R. applauds Homebuyer Tax Credit legislation

For release:
Thursday, March 25, 2010

C.A.R. applauds Gov. Schwarzenegger’s signing Homebuyer Tax Credit legislation into law

LOS ANGELES (March 25) – The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) today praised California Governor Arnold Schwarzenegger for his leadership in signing the Homebuyer Tax Credit legislation into law.

“We are pleased that Governor Schwarzenegger recognized the positive impact the tax credit will have for families hoping to buy their first home,” said C.A.R. President Steve Goddard. “Successful passage of this legislation was the result of our efforts in Sacramento over the last several weeks as REALTORS® and our team in the capital worked for the bill’s passage before it landed on the governor’s desk earlier this week.”

California’s previous home buyer tax credit program was so successful that it ran out of tax credits by the end of June 2009, eight months before it was set to expire and just as housing markets appeared to be turning a corner. Unlike last year’s legislation, the Homebuyer Tax Credit signed into law today adds a tax credit for the purchase of an existing home by a first-time home buyer.

“The positive impact of the home buyer tax credit at the federal level is clear,” Goddard said. “Nearly 40 percent of first-time home buyers said they would not have purchased a home if the federal tax credit for first-time home buyers was not offered, according to C.A.R. research conducted last year. We expect the state tax credit for home buyers to have the same impact.”

AB 183 will provide $200 million for home buyer tax credits, allocating $100 million for qualified first-time home buyers of existing homes and $100 million for purchasers of new, or previously unoccupied, homes. The eligible taxpayer who purchases a qualified personal residence on and after May 1, 2010, and on or before Dec. 31, 2010, or who purchases a qualified principal residence on and after Dec. 31, 2010, and before Aug. 1, 2011, pursuant to an enforceable contract executed on or before Dec. 31, 2010, will be able to take the allowed tax credit. The credit is equal to the lesser of 5 percent of the purchase price or $10,000, in equal installments over three consecutive years. Under AB 183, purchasers will be required to live in the home for at least two years or forfeit the credit (i.e., repay it to the state).

“AB 183 also will significantly contribute to efforts to stimulate jobs creation within California's housing market by helping to incentivize first-time home buyers to purchase homes that have been abandoned, foreclosed upon, and returned to the lender; or have been sitting on the market for extended periods of time,” Goddard said. “It is these homes that will require substantial rehabilitation by the new owners, which will in turn generate a tremendous increase in jobs and accessory purchases connected to home improvement activities.”

Leading the way…® in California real estate for more than 100 years, the CALIFORNIA ASSOCIATION OF REALTORS® (www.car.org) is one of the largest state trade organizations in the United States, with nearly 150,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.

Governor expected to sign state
homebuyer tax credit bill

The California legislature on Monday passed AB 183, providing $200 million for home buyer tax credits. The Governor is expected to sign the bill into law this week. C.A.R. supported this important legislation since its inception. Part of a package of four bills passed at the request of the Governor, AB 183 is designed to help stimulate the economy and create jobs. It allocates $100 million for qualified first-time homebuyers who purchase existing homes and $100 million for purchasers of new, or previously unoccupied, homes.
The eligible taxpayer who closes escrow on a qualified principal residence between May 1, 2010 and December 31, 2010, or who closes escrow on a qualified principal residence on and after December 31, 2010 and before August 1, 2011, pursuant to an enforceable contract executed on or before December 31, 2010, will be able to take the allowed tax credit.

This credit is equal to the lesser of 5 percent of the purchase price or $10,000, taken in equal installments over three consecutive years. Under AB 183 purchasers will be required to live in the home as their principal residence for at least two years or forfeit the credit (i.e. repay it to the state).

BILL NUMBER: AB 183 ENROLLED BILL TEXT

        PASSED THE SENATE MARCH 22, 2010

        PASSED THE ASSEMBLY MARCH 22, 2010

        AMENDED IN SENATE MARCH 18, 2010

        AMENDED IN SENATE SEPTEMBER 4, 2009

INTRODUCED BY   Assembly Member Caballero

   (Principal coauthor: Senator Ashburn)

                        FEBRUARY 2, 2009

   An act to add and repeal Section 17059.1 of the Revenue and

Taxation Code, relating to taxation, to take effect immediately, tax

levy.

        LEGISLATIVE COUNSEL'S DIGEST

   AB 183, Caballero. Income tax credit: qualified principal

residence.

   The Personal Income Tax Law authorizes various credits against the

taxes imposed by that law, including a credit against those taxes in

an amount equal to the lesser of 5% of the purchase price of a

qualified principal residence, as defined, or $10,000, for purchases

made between March 1, 2009, and before March 1, 2010, subject to

specified restrictions.

   This bill would authorize a credit against those taxes in an

amount equal to the lesser of 5% of the purchase price of a qualified

principal residence, as defined, or $10,000, for purchases made

between May 1, 2010, and on or before December 31, 2010, or on or

after December 31, 2010, and before August 1, 2011, subject to

specified restrictions, including the submission of a certification

to the Franchise Tax Board by either the taxpayer or seller, made

under the penalty of perjury, that the residence has either never

been occupied or that the taxpayer is a first-time home buyer.

   This bill would limit the total amount of credits to $200,000,000

and would require that the aggregate limitation of $100,000,000 in

credits for the purchase of qualified principal residences that have

never been occupied be reduced by 70% of the credit amount allocated

under each certification by the Franchise Tax Board, and would

require that the aggregate limitation of $100,000,000 in credits for

the purchase of a qualified principal residence by first-time home

buyers be reduced by 57% of the credit amount allocated under each

certification by the Franchise Tax Board.

   By expanding the definition of an existing crime, this bill

imposes a state-mandated local program.

   The California Constitution requires the state to reimburse local

agencies and school districts for certain costs mandated by the

state. Statutory provisions establish procedures for making that

reimbursement.

   This bill would provide that no reimbursement is required by this

act for a specified reason.

   This bill would take effect immediately as a tax levy.

THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

 SECTION 1. Section 17059.1 is added to the Revenue and Taxation

Code, to read:

   17059.1. (a) (1) In the case of any taxpayer who purchases a

qualified principal residence on and after May 1, 2010, and on or

before December 31, 2010, or any taxpayer who purchases a qualified

principal residence on and after December 31, 2010, and before August

1, 2011, pursuant to an enforceable contract executed on or before

December 31, 2010, there shall be allowed as a credit against the

"net tax," as defined in Section 17039, an amount equal to the lesser

of 5 percent of the purchase price of the qualified principal

residence or ten thousand dollars ($10,000).

   (2) The amount of any credit allowed under paragraph (1) shall be

applied in equal amounts over the three successive taxable years

beginning with the taxable year in which the purchase of the

qualified principal residence is made.

   (3) The credit under this section shall be allowed for the

purchase of only one qualified principal residence with respect to

any taxpayer.

   (4) A qualified principal residence is purchased on the date on

which escrow closes with respect to the purchase of the qualified

principal residence.

   (b) For purposes of this section:

   (1) "Qualified principal residence" means a single-family

residence, whether detached or attached, that is purchased to be the

principal residence of the taxpayer, is eligible for the homeowner's

exemption under Section 218, and has either never been occupied or is

purchased by a first-time home buyer.

   (2) "First-time home buyer" means any individual, or individual's

spouse, who had no present ownership interest in a principal

residence during the preceding three-year period ending on the date

of the purchase of the qualified principal residence.

   (c) (1) (A) A taxpayer may, but is not required to, reserve a

credit prior to close of escrow for the purchase of a qualified

principal residence that has never been occupied. To reserve a

credit, the taxpayer and seller shall jointly sign and submit to the

Franchise Tax Board a certification that they have entered into an

enforceable contract on or after May 1, 2010, and on or before

December 31, 2010. Upon receipt of the joint certification, the

Franchise Tax Board shall notify the taxpayer that the board has

reserved the credit for the taxpayer, pending receipt, within two

weeks after the close of escrow, of the information required under

paragraph (2) for a qualified principal residence that has never been

occupied.

   (B) The reservation of a credit shall be canceled if a taxpayer

does not provide either the information required under paragraph (2)

or a notification of cancellation before August 16, 2011.

   (2) No credit shall be allowed under this section unless the

taxpayer submits to the Franchise Tax Board, within two weeks after

the date of the purchase of the qualified principal residence, a copy

of the properly executed settlement statement and either one of the

following:

   (A) If the qualified principal residence has never been occupied,

a certification by the seller, made under penalty of perjury, that

the residence has never been previously occupied.

   (B) If the qualified principal residence is purchased by a

taxpayer who is a first-time home buyer, a certification from the

taxpayer, made under penalty of perjury, that he or she is a

first-time home buyer.

   (d) If the taxpayer does not occupy the qualified principal

residence as his or her principal residence for at least two years

immediately following the purchase, any remaining unapplied credit

shall be canceled and any previously applied credit shall be

recaptured, and the taxpayer shall be liable for any increase in tax

attributable to the recapture of any credit previously allowed under

this section.

   (e) (1) In the case of two married taxpayers filing separately,

the credit allowed under subdivision (a) shall be equally apportioned

between the two taxpayers.

   (2) If two or more taxpayers who are not married purchase a

qualified principal residence, the amount of the credit allowed under

subdivision (a) shall be allocated among the taxpayers in the same

manner as each taxpayer's percentage of ownership, except that the

total amount of the credits allowed to all of these taxpayers shall

not exceed an amount equal to the lesser of 5 percent of the purchase

price of the qualified principal residence or ten thousand dollars

($10,000).

   (f) (1) The total amount of credit that may be allocated pursuant

to this section shall not exceed one hundred million dollars

($100,000,000) for the purchase of qualified principal residences

that have never been occupied and one hundred million dollars

($100,000,000) for the purchase of qualified principal residences by

first-time home buyers.

   (A) For each certification or reservation received from a taxpayer

for the purchase of a qualified principal residence that has never

been occupied, the total amount of credit available for allocation

shall be reduced by an amount equal to 70 percent of the amount of

the credit for the purchase of a qualified principal residence that

has never been occupied.

   (B) For each certification received from a taxpayer for the

purchase of a qualified principal residence by a first-time home

buyer, the total amount of credit available for allocation shall be

reduced by an amount equal to 57 percent of the amount of the credit

for the purchase of a qualified principal residence by a first-time

home buyer.

   (2) Once the credits allocated for qualified principal residences

that have never been occupied exceed the limit established in

subparagraph (A) of paragraph (1), the Franchise Tax Board shall

establish a wait list for subsequently received certifications or

reservations, with an order of priority based on the date

certification or reservation was received by the Franchise Tax Board.

The Franchise Tax Board shall notify taxpayers on the wait list no

later than December 31, 2011, as to whether they have been allocated

a credit and the amount allocated.

   (3) In the case where a taxpayer is both a first-time home buyer,

as described in paragraph (2) of subdivision (b), and the purchaser

of a qualified principal residence that has never been occupied, the

Franchise Tax Board shall allocate that taxpayer their credit amount

from the one hundred million dollars ($100,000,000) for qualified

principal residences that have never been occupied.

   (g) (1) Upon receipt of the information described in subdivision

(c), the Franchise Tax Board shall allocate the credit to the

taxpayer on a first-come-first-served basis.

   (2) (A) Except as provided in subparagraph (B), the taxpayer shall

claim the credit on a timely filed original return.

   (B) Taxpayers on the wait list, as described in paragraph (2) of

subdivision (f), that are allocated a credit for a qualified

principal residence that was purchased in the 2010 taxable year may

claim the credit on an amended income tax return for that taxable

year.

   (3) The date the information described in subdivision (c) is

received shall be determined by the Franchise Tax Board.

   (4) (A) The determinations of the Franchise Tax Board with respect

to the date the information described in subdivision (c) is

received, the allocation and reservation of credit, and whether a

return has been timely filed for purposes of this subdivision, may

not be reviewed in any administrative or judicial proceeding.

   (B) Any disallowance of a credit claimed due to a determination

under this subdivision, including the application of the limitation

specified in subdivision (f), shall be treated as a mathematical

error appearing on the return. Any amount of tax resulting from that

disallowance may be assessed by the Franchise Tax Board in the same

manner as provided by Section 19051.

   (h) The Franchise Tax Board may prescribe rules, guidelines, or

procedures necessary or appropriate to carry out the purposes of this

section, including any guidelines regarding the allocation of the

credit allowed under this section. Chapter 3.5 (commencing with

Section 11340) of Part 1 of Division 3 of Title 2 of the Government

Code does not apply to any rule, guideline, or procedure prescribed

by the Franchise Tax Board pursuant to this section.

   (i) The credit allowed by this section is not a business credit

within the meaning of Section 17039.2.

   (j) No credit shall be allowed under this section if any of the

following apply:

   (1) The taxpayer was allowed a credit under Section 17059.

   (2) The taxpayer is not 18 years of age or older as of the date of

purchase. A taxpayer who is married at the date of purchase shall be

considered to be 18 years of age if the spouse of the taxpayer is 18

years of age or older on the date of purchase.

   (3) The taxpayer or the taxpayer's spouse, if the taxpayer is

married, is related to the seller within the meaning of Section 267

of the Internal Revenue Code, related to losses, expenses, and

interest with respect to transactions between related taxpayers.

   (4) The taxpayer qualifies as a dependent, as defined in Section

17056, of any other taxpayer for the taxable year of the purchase.

   (k) This section shall remain in effect only until December 1,

2014, and as of that date is repealed.

 SEC. 2.   No reimbursement is required by this act pursuant to

Section 6 of Article XIII B of the California Constitution because

the only costs that may be incurred by a local agency or school

district will be incurred because this act creates a new crime or

infraction, eliminates a crime or infraction, or changes the penalty

for a crime or infraction, within the meaning of Section 17556 of the

Government Code, or changes the definition of a crime within the

meaning of Section 6 of Article XIII B of the California

Constitution.

 SEC. 3. This act provides for a tax levy within the meaning of

Article IV of the Constitution and shall go into immediate effect.

BELOW IS INFORMATION ON
THE CURRENT FEDERAL TAX
CREDIT!

Extended Home Buyer Tax Credit 2009/2010

Bringing the Dream of Homeownership Within Reach
As part of its plan to stimulate the U.S. housing market and address the economic challenges facing our nation, Congress has passed new legislation that:
Extends the First-Time Home Buyer Tax Credit of up to $8,000 to first-time home buyers until April 30, 2010.
Expands the credit to grant up to $6,500 credit to current home owners purchasing a new or existing home between November 7, 2009 and April 30, 2010.
Here is more information about how the Extended Home Buyer Tax Credit can help prospective home buyers become part of the American dream. If you have specific questions or need additional information, please contact a tax professional or the Internal Revenue Service at 800-829-1040.

Who Qualifies for the Extended Credit?
First-time home buyers who purchase homes between November 7, 2009 and April 30, 2010.

Current home owners purchasing a home between November 7, 2009 and April 30, 2010, who have used the home being sold or vacated as a principal residence for five consecutive years within the last eight.
To qualify as a “first-time home buyer” the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase.

If you or your client purchased a home between January 1, 2009 and November 6, 2009, please see: 2009 First-Time Home Buyer Tax Credit.
Which Properties Are Eligible?
The Extended Home Buyer Tax Credit may be applied to primary residences, including: single-family homes, condos, townhomes, and co-ops.
How Much Is Available?
The maximum allowable credit for first-time home buyers is $8,000.
The maximum allowable credit for current homeowners is $6,500.
How is a Buyer's Credit Amount Determined?
Each home buyer’s tax credit is determined by two additional factors:
The price of the home.
The buyer's income.
Price

Under the Extended Home Buyer Tax Credit, credit may only be awarded on homes purchased for $800,000 or less.
Buyer Income

Under the Extended Home Buyer Tax Credit, which is effective on November 7, 2009, single buyers with incomes up to $125,000 and married couples with incomes up to $225,000—may receive the maximum tax credit.
These income limits have changed from the 2009 First-Time Home Buyer Tax Credit limits. If you or your client purchased a home between January 1, 2009 and November 6, 2009, please see 2009 First-Time Home Buyer Tax Credit.
If the Buyer(s)’ Income Exceeds These Limits, Can He/She Still Get a Credit?
Yes, some buyers may still be eligible for the credit.
The credit decreases for buyers who earn between $125,000 and $145,000 for single buyers and between $225,000 and $245,000 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 $145,000 for singles and over $245,000 for couples are not eligible for the credit.
Can a Buyer Still Qualify If He/She Closes After April 30, 2010?
Under the Extended Home Buyer Tax Credit, as long as a written binding contract to purchase is in effect on April 30, 2010, the purchaser will have until July 1, 2010 to close.
Will the Tax Credit Need to Be Repaid?
No. The buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during this three-year period, the full amount credit will be recouped on the sale.

Homebuyer Tax Credit Update
Introduction

There were major changes on November 6, 2009 to the homebuyer tax credit after passage of the federal Worker, Homeownership, and Business Assistance Act of 2009. This new law extended the homebuyer tax credit to a broader range of home purchasers and added new documentation requirements to deter fraud and ensure taxpayers properly claim the credit. In particular, the first-time home buyer tax credit for $8,000 (or $4,000 if married and filing separately) maximum was extended to April 30, 2010. In addition, the law provides a homebuyer tax credit of $6,500 ($3,250 if married and filing separately) maximum for current homeowners who had used the home sold or being sold as a principal residence consecutively for five of the previous eight years. For all qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax returns.

A new version of IRS Form 5405 , First-Time Homebuyer Credit, is available (revised December 2009). A taxpayer who purchases a home after Nov. 6, 2009 must use this new version of the form to claim the credit. Likewise, taxpayers claiming the credit on their 2009 returns, no matter when the house was purchased, must also use the new version of Form 5405. Taxpayers who claim the credit on their 2009 tax return will not be able to file electronically but instead will need to file a paper return. A taxpayer who purchased a home on or before Nov. 6, 2009 and chooses to claim the credit on an original or amended 2008 return may use the old version of Form 5405.
The new law also provides a "binding contract" provision which, in essence, states that so long as a written binding contract to purchase is in effect on April 30, 2010, the buyer has until July 1, 2010 to close escrow.
In addition, the law increased the income limits in order for the buyer to be eligible for the tax credit. The increased modified adjusted gross income (MAGI) limits are effective as of November 7, 2009: $125,000 for a single person, $225,000 for a married couple. For homes purchased prior to Nov. 7, 2009, existing MAGI limits remain in place. The full credit is available to taxpayers with MAGI up to $75,000 ($150,000 for joint filers). Those with MAGI between $75,000 and $95,000 (or $150,000 and $170,000 for joint filers) are eligible for a reduced credit. Those with higher incomes do not qualify.
The law includes anti-fraud provisions that require the purchaser to attach certain documentation to the tax return. The new documentation requirements mean that taxpayers claiming the credit cannot file electronically and must file paper returns.
Finally, several new restrictions on purchases that occur after Nov. 6, 2009 go into effect with the new law:

^. Dependents are not eligible to claim the credit.
^. No credit is available if the purchase price of a home is more than $800,000.
^. A purchaser must be at least 18 years of age on the date of purchase.

FIRST-TIME HOMEBUYER FOR HOMES PURCHASED IN 2009 OR 2010

Q 1. Who is considered a first-time homebuyer?

A A homebuyer is considered a first-time buyer if all of the following requirements are satisfied:
1. The main home is purchased in the United States, and
It is purchased after Dec. 31, 2008 and before May 1, 2010, or
It is purchased after April 30, 2010 and before July 1, 2010 and the buyer entered into a binding purchase contract before May 1, 2010 with the close of escrow before July 1, 2010.
2. The buyer (and spouse if married) did not own any other main home during the 3-year period ending on the date of purchase.

3. The buyer does not satisfy any of the conditions listed in Question 3.
(Source: Instructions for Form 5405 (rev. Dec. 2009).)
Q 2. What is a "main home" as mentioned in this legal article?
A A main home is "the one you live in most of the time. It can be a house, houseboat, mobile home, cooperative apartment, or condominium."

(Source: Instructions for Form 5405 (rev. Dec. 2009).)

Q 3. When is a first-time homebuyer not eligible for the tax credit?

A A first-time homebuyer cannot claim the tax credit if any of the following apply:

1. The purchase price of the home is more than $800,000. (This rule applies to homes purchased after November 6, 2009.)

2. The buyer's modified adjusted gross income (MAGI) is
      a. $95,000 or more ($170,000 or more if married filing jointly) and the home was purchased before November 7, 2009, or
     b. $145,000 or more ($245,000 or more if married filing jointly) and the home was purchased after November 6, 2009.

3. The buyer was claimed as a dependent on another person's tax return. (This rule applies to homes purchased after November 6, 2009.)

4. The buyer (and spouse if married) is under age 18 on the date of purchase. (This rule applies to homes purchased after November 6, 2009.)
5. The buyer is a non-resident alien.

6. The main home is located outside the United States.

7. The main home is sold, or it ceases to be the main home, before the end of the year in which it was purchased. (Note: this rule doesn't apply if the buyer is a member of the uniformed services or Foreign Service, or an employee of the intelligence community on qualified official extended duty as defined in the Instructions to Form 5405 (2009) and the main home is sold, or it ceases to be the main home, after 2008. The tax credit can be claimed on the return for the year of purchase or on the return for the year before the year of purchase.)

8. The main home was acquired by gift or inheritance.

9. The main home was acquired from a related person. (A related person is a spouse, parent, grandparent, or other ancestor; or a corporation in which you directly or indirectly own more than 50% of the capital interest or profits interest; or a partnership in which you directly or indirectly own more than 50% of the capital interest or profits interest.)
10. The buyer acquired the main home after November 6, 2009, from a person related to the buyer's spouse. This includes the spouse's ancestors or lineal descendants. Examples are the buyer's parents-in-law or stepchildren.
Source: Instructions for Form 5405 (rev. Dec. 2009).)
Q 4. What is the amount of the tax credit for a first-time homebuyer?
A The tax credit is 10% of the purchase price of the home not to exceed $8,000 (or $4,000 for a married person filing separately). The tax credit may entitle the homeowner to a refund even if no tax is owed.
(Source: Instructions for Form 5405 (rev. Dec. 2009).)
Q 5. What documentation must be attached to the tax return (Form 1040) for a first-time homebuyer?
A The following documentation must be attached to the buyer's tax return for 2009 or 2010:
^. Settlement statement showing all parties' names and signatures, the property address, the contract sales price, and the date of purchase. In most cases, the settlement statement is the properly executed Form HUD-1.
^. For a mobile home, the buyer may attach a copy of the executed retail sales contract showing all parties' names and signatures, the property address, the purchase price, and the date of purchase.
^. For a newly-constructed home and there is no executed settlement statement, attach a copy of the certificate of occupancy showing buyer's name, the property address, and the date of the certificate.
^. If the date of purchase is after April 30, 2010 and before July 1, 2010, attach a copy of the pages from the signed purchase contract showing all parties' names and signatures, the property address, the purchase price, and the date of the contract.
(Source: Instructions for Form 5405 (rev. Dec. 2009).)

FIRST-TIME HOMEBUYER FOR HOMES PURCHASED IN 2008

Q 6. What were the differences in the tax credit for a first-time homebuyer who closed escrow in 2008?

A The Housing and Economic Recovery Act of 2008 established a tax credit of 10% for first-time homebuyers with a maximum of $7,500 ($3,750 for a married person filing a separate return); however, this tax credit is equivalent to a no-interest loan and must be repaid in 15 equal, annual installments beginning with the 2010 income tax year. This credit applies to home purchases after April 8, 2008 and before Jan. 1, 2009. This credit reduces a taxpayer's tax bill or increases his or her refund, dollar for dollar. In other words, the tax credit is fully refundable--the credit is paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.

For example, if a buyer claimed the maximum available credit of $7,500 , then the buyer would begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his or her 2010 income tax return.

The tax credit is reduced or eliminated for higher-income taxpayers. The tax credit is phased out based on the MAGI. For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the phase-out range is $75,000 to $95,000. That means the full credit is available for married couples filing a joint return whose MAGI is $150,000 or less and for other taxpayers whose MAGI is $75,000 or less.

See the Internal Revenue Service News Release IR-2008-106, Sept. 16, 2008 (http://www.irs.gov/newsroom/article/0,,id=186831,00.html) for more details.

LONG-TIME RESIDENT HOMEBUYER FOR HOMES PURCHASED IN 2009 OR 2010

Q 7. Can an existing homeowner get the tax credit for a new home purchase?

A Yes, under certain circumstances after passage of the federal Worker, Homeownership, and Business Assistance Act of 2009 existing homeowners are eligible for a tax credit for a new home purchase. Existing homeowners were not eligible for the tax credit under the prior law.

In order to be eligible to claim the tax credit, the buyer must meet all of the following requirements:

1. The buyer (and his or her spouse, if married) must have owned and used the same main home for any 5-consecutive-year period during the 8-year period ending on the date the new main home is purchased (typically the escrow close date).

2. The new main home is located in the United States and it was purchased
a. After November 6, 2009 and before May 1, 2010, or
b. After April 30, 2010 and before July 1, 2010 and the buyer entered into a binding purchase contract before May 1, 2010 with the close of escrow before July 1, 2010.
3. The buyer does not satisfy any of the conditions listed in Question 3.

Note: The definition of main home can be found in Question 2.

(Source: Instructions for Form 5405 (rev. Dec. 2009).)

Q 8. What is the amount of the tax credit for a long-time resident homebuyer?

A The tax credit is 10% of the purchase price not to exceed $6,500 ($3,250 if married filing separately). The tax credit may entitle the homeowner to a refund even if no tax is owed.

(Source: Instructions for Form 5405 (rev. Dec. 2009).)

Q 9. What documentation must be attached to the tax return (Form 1040) for a long-time resident homebuyer?

A The following documentation must be attached to the buyer's tax return for 2009 or 2010:

^. Settlement statement showing all parties' names and signatures, the property address, the contract sales price, and the date of purchase. In most cases, the settlement statement is the properly executed Form HUD-1.
^. For a mobile home, the buyer may attach a copy of the executed retail sales contract showing all parties' names and signatures, the property address, the purchase price, and the date of purchase.
^. For a newly-constructed home and there is no executed settlement statement, attach a copy of the certificate of occupancy showiwng buyer's name, the property address, and the date of the certificate.
^. If the date of purchase is after April 30, 2010 and before July 1, 2010, attach a copy of the pages from the signed purchase contract showing all parties' names and signatures, the property address, the purchase price, and the date of the contract.
^. Form 1098, Mortgage Interest Statement (or substitute statement), property tax records, or homeowner's insurance records. (These records should be for 5 consecutive years of the 8-year period ending on the purchase date of the new main home.)

(Source: Instructions for Form 5405 (rev. Dec. 2009).)

Q 10. Must the tax credit be repaid for a first-time homebuyer or a long-time resident homebuyer for purchases in 2009 or 2010?

A No, if the homebuyer owns the main home and uses it as a main home for at least 36 months beginning on the purchase date (close of escrow) then the tax credit need not be repaid.

However, if the home was purchased after 2008, the tax credit must be repaid if the home is disposed of or ceases to be the main home during the 36-month period beginning on the purchase date (close of escrow). This includes situations such as selling the home, converting the entire home to a business or rental property, the home is destroyed, condemned, or is disposed of under threat of condemnation, or the lender forecloses on the mortgage.

If applicable, the tax credit is to be repaid by being included as additional tax on the tax return for the year it is disposed or ceases to be the main home. If the home is destroyed, condemned, or disposed of under threat of condemnation, and a new home is not acquired within 2 years of the event, then the entire repayment amount must be repaid with the tax return for the year in which the 2-year period ends.

(Source: Instructions for Form 5405 (rev. Dec. 2009).)

Q 11. What are the exceptions to the repayment rule in Question 10?

A The following are exceptions to the repayment rule:

^. If the home is sold to someone who is not related to the homebuyer during the 36-month period, the repayment in the year of sale is limited to the amount of gain on the sale. The amount of the credit in excess of the gain doesn't have to be repaid.
^. If the home is destroyed, condemned, or disposed of under threat of condemnation, the tax credit need not be repaid if a new home is purchased within 2 years of the event and you own and use it as your new main home during the remainder of the 36-month period.

^. If, as part of a divorce settlement, the home is transferred to a spouse or former spouse, the spouse who receives the home is responsible for repaying the credit if, during the 36-month period beginning on the purchase date, the spouse disposes of the home or it ceases to be his or her main home and none of the other exceptions apply.

^. Members of the uniformed services or Foreign Service and employees of the intelligence community (as defined in the Form 5405 Instructions) do not have to repay the credit if, after 2008, they sell the home or the home ceases to be their main home because they received Government orders to serve on qualified official extended duty.

^. If the homebuyer dies, repayment of the tax credit is not required. However, if the credit was claimed on a joint return, the surviving spouse would be required to repay his or her half of the credit if, during the 36-month period beginning on the purchase date, he or she disposes of the home or it ceases to be his or her main home and none of the other exceptions apply.

(Source: Instructions for Form 5405 (rev. Dec. 2009).)

Q 12. Must the tax credit be repaid for a first-time homebuyer for purchases in 2008?

A Yes. For a main home purchased in 2008 and owned and used as the main home during all of 2009 and 2010, repayment of the credit over a 15-year period begins with the 2010 tax return. Form 5405 is not to be filed in 2009. These homebuyers must file the 2010 revision of Form 5405 with the 2010 Form 1040.

However, if the home was purchased in 2008 and it ceased to be the main home in 2008 or 2009, then the tax credit must be repaid with the 2009 tax return. An exception applies if the home was destroyed, condemned, or disposed of under threat of condemnation, and a new main home was not acquired within 2 years of the event. In that case, the tax credit is to be repaid with the tax return for the year in which the 2-year period ends.

Another exception applies for certain members of the uniformed services or Foreign Service or employees of the intelligence community (see instructions for line 12 on Form 5405).

(Source: Instructions for Form 5405 (rev. Dec. 2009).)

Q 13. Where can I get more information?

A For any other tax credit questions not convered in this Legal Q&A, please refer to the Instructions for Form 5405 (rev. Dec. 2009). In addition, see the IRS, First-Time Homebuyer Credit Questions and Answers: Claiming the Credit on Your Tax Return. This chart is just one of the many legal publications and services offered by C.A.R. to its members.

Readers who require specific advice should consult an attorney.

CALIFORNIA ASSOCIATION OF REALTORS®
Member Legal Services
525 S. Virgil Ave.
Los Angeles, CA 90020

The information contained herein is believed accurate as of Feb. 2, 2010. It is intended to provide general answers to general questions and is not intended as a substitute for individual legal advice. Advice in specific situations may differ depending upon a wide variety of factors. Therefore, readers with specific legal questions should seek the advice of an attorney.

Homebuyer tax credit: No e-file and four-month delays

NEW YORK (CNNMoney.com) -- Good news homebuyers: You can file for your $8,000 first-time buyer tax credit again.

Bad news: You still can't e-file your taxes if you want the cash. And there are long delays.

On Thursday, CNNMoney revealed that buyers who purchased their properties after Nov. 6 were unable to claim the refund because the Internal Revenue Service had yet to release a new form and instructions. But on Friday, the IRS finally posted the new form 5405.

The two-month delay was frustrating to Florida resident Charles Teschke. "We are not broke or anything, but nevertheless we were still counting on getting the tax refund to help pay for the appliances and stuff we needed for our new home," he said. "The IRS told me they estimate it will take four months for me to get my refund!"

First-time buyers were able to immediately file for the tax credit after Congress approved it last February as part of the stimulus program. All they had to do was file an amendment to their 2008 tax returns (the ones they filed last April) and claim the promised refund of 10% of the purchase price, up to $8,000.

What I did with my $8,000 tax credit

They were able to e-file, and they received their refunds promptly. One reader filed a claim the first week of August, and had the check by the third week in September.

For example, in October tax preparer James Otto Price III was the first person convicted of this crime. He falsely claimed the credit for 15 clients.

So buyers must now file documentation with their taxes -- including proof of residency, a signed mortgage statement and drivers license -- which the e-file system is not equipped to handle.

"Because of the scams, the IRS started sending back the amended returns and asking for proof," said Mary Mellem of David & Mary Mellem, EAs & Ashwaubenon Tax Professionals. "The system has no way of sending along the documents they're requiring. Taxpayers must file a paper return instead."

The IRS points out that taxpayers can still use the electronic forms available on its Web site or consumer sites such as TurboTax; they just have to print them out, attach the proof and mail everything in. And that can take quite a while.

"Taxpayers are looking at another three months before they get their returns," said Mellem.

3 people the homebuyer tax credit helped

By Les Christie, staff writerJanuary 26, 2010: 1:00 PM ET

NEW YORK (CNNMoney.com) -- The road to homeownership was hard for Valatisha Jacinto.

The Waco, Texas, schoolteacher had wrecked her credit struggling to pay for college, and later trying to support herself and her daughter on a teacher's salary. She knew she wanted to buy a home, and that meant she needed to clean up her credit.

So she started attending credit-counseling classes run by NeighborWorks, a network of community-development and affordable-housing organizations. For several years she steadily worked on her debt.

That meant she was ready to act last February when President Obama signed the stimulus bill, which, among other things, authorized a refundable $8,000 tax credit for first-time homebuyers.

"My first question was, 'Do I have to pay this money back?'" she said. "When I found out I didn't, I said, 'Let me work even harder on my credit.'"

In March she bought a three-bedroom, two-bath home for $105,000. She took out a 4.9% FHA-insured 30-year loan, putting her monthly expenses, including property taxes and insurance, at just $830.

"I never thought anything that good would happen to me," she said.

She's not alone.

More than 1.4 million Americans have filed for the tax credit, according to the IRS. In fact, the program became so popular that Congress voted in November to extend and expand it. Now, the credit expires on June 30, for contracts signed by April 30, and there is a $6,500 refund available to some current homeowners looking to buy.

Congress created the incentive as part of the stimulus bill as a way to restart home sales. Because the real estate bust helped usher in the recession in the first place, legislators argued that healing the industry's ills would lead to recovery.

"I wouldn't have been able to afford my house without it," said Rob Logan, who bought his Ypsilanti, Mich., house for $71,000 in October. "It was one of the main reasons I started looking."

Logan has already spent most of his refund rehabbing his home, a foreclosure that was in far from perfect shape. There wasn't a single appliance left and the kitchen cabinets had vanished; the wiring was old and the floors cruddy.

The 28 year old, who works for a digital entertainment licensing company, corralled friends and family into helping, but he still had to pay out for parts and for a new kitchen. ("I never want to go back to Loews again," he said.) He figures he's spent about $7,000.

"The credit helped me pay for all my appliances and some plumbing and other maintenance," Logan said. "I was able to spend more of my saved money on a 20% down payment and that has made my mortgage more affordable."

Like Logan, many homebuyers shop til they drop during their first months of ownership. They make repairs, upgrade baths and kitchens, redecorate, and buy furniture, appliances and electronics. And that helps to stimulate the economy by keeping the Wal-Marts, Home Depots, Best Buys and Ikeas humming and contractors working.

The credit has also boosted home sales, according to the National Association of Realtors. Sales soared in October and November as first-time buyers rushed to take advantage of the tax credit before the original expiration date. More than half of all transactions were from these buyers during those two months, according to NAR, comparedto the usual market share of about 40%.

For Chris Saliture, a Minnesotan, the credit was vital. "That's what got me started," he said. "I knew the incentive program was going on. I may still have looked, but this had an impact on what I could afford."

The 23 year old, who curates wine Web sites, is devoting the refund to a single purpose: a spiral staircase to connect the upper and lower floors. "It's a very interesting house," said Saliture, who bought the foreclosure for just over $100,000. "It's on three levels, but there's no interior staircase."

The house started life as a circa-1885 train depot, and it was later moved from its location alongside the railroad tracks onto a nearby lot in the St. Anthony section of St. Paul. As a result, the only way to get to the top floor is a metal exterior staircase that is 12-feet wide.

There is some hope that this good thing could live on after June 30. If the housing market and the economy is not in full recovery mode by late spring, there is already discussion about Congress extending the tax credit again, according to Jaret Seiberg of Concept Capital, a Washington-based research group.

"We believe this option is likely because housing is a key issue for many Democrats and Republicans facing re-election," he wrote in a research note. "And the $10 billion cost is relatively modest given the importance of the housing sector to the economy."

Nab a real estate deal - while you still can

By Beth Braverman, staff reporterMarch 2, 2010: 10:30 AM ET

(Money Magazine) -- If you've been holding off on a real estate purchase, glimmers of a turnaround in the housing market may have you wondering if it's finally time to make your move.

While home prices remain low, they're no longer free-falling in most markets. Mortgages are historically cheap. And the sweet tax credit that was offered to new buyers last year has been extended to April 30 and expanded to include current homeowners too.

But for all the motivation to act quickly, buying right now is not a no-brainer. In some areas home prices may fall further. If you own a house now, it may take longer than you expect to sell it, and you may walk away with less cash than you thought.

"It's a good time to buy, but it's still a really difficult market," says Patrick Newport of IHS Global Insight. As the clock ticks toward the tax-credit deadline, answer these questions to decide whether it's time to get off the sidelines.

Can you really nab that tax credit?

Current homeowners who sign a contract to buy a home on or before April 30 get a dollar-for-dollar reduction on their taxes of 10% of the purchase price of the home, up to a maximum of $6,500 (first-time buyers can get up to $8,000).

But according to the National Association of Realtors, buyers spend about 12 weeks home shopping before making an offer, so if you haven't already started looking, you may be pressed to meet the deadline.

Plus, to qualify for the full credit, your household income must be under $225,000 if you're married and less than $125,000 if you're single; repeat buyers must have lived in the home they are selling for five of the past eight years. The good news: Once you've signed the contract, you have until June 30 to close the deal.

How much could you lose by waiting?

Besides the loss of the tax credit, the biggest game-changer facing buyers is a potential jump in mortgage rates. If the Fed moves ahead with its plan to stop buying mortgage-backed securities at the end of March, the rate on a 30-year fixed mortgage is expected to increase nearly a percentage point from today's 5.18% to 6.1% by the end of 2010, according to the Mortgage Bankers Association. On a $300,000 fixed-rate mortgage, that's an extra $174 per month.

But if home values are falling in your area, you don't have much to lose by waiting. If the house you want costs $375,000 today and you put down 20%, you'd pay $1,644 a month for a fixed-rate mortgage at 5.18%. Buy that same home for 5% less later on with rates at 6% and you'd only pay an extra $65 a month. If prices plunge 10% or more this year (as they are expected to in 12% of markets, according to Fiserv), you'll come out even or ahead.

To get a handle on the direction of your market, check trulia.com to see whether inventory levels are increasing, and visit realtytrac.com to find out whether foreclosure filings are still rising. A glut of properties and bank-owned homes means a recovery may not be in sight.

How quickly can you sell the home you now own?

Even in markets that are recovering, sellers must price aggressively to make a fast deal.

"Everybody thinks their house is worth more than it is," says Dallas realtor Bruce Lynn. Before you sign a contract for a new place, ask a few agents to give you a realistic figure that will generate a quick sale. Can't bear to part with your home at that price? Waiting may be your only option.

Also keep in mind that, with the credit crunch not far in the past, lenders may not approve your purchase until you've sold your home. A delay in sale could also stick you with two mortgages, far outstripping any savings from the tax credit.

See if the sellers will let you put a contingency in the contract that negates the sale if you don't find a buyer -- it's a long shot but worth a try. If they won't, propose adding a kick-out clause that allows the sellers to keep their home on the market, but lets you either pull out or quickly move ahead with the deal if they get another offer.

While extra contract negotiations may be a hassle, the past few years have proved that a purchase decision shouldn't be taken lightly. "This may be the best time in history to buy a home," says Denver realtor Jeff Fogler, "but only if you can really afford it."

But on Nov. 6 the rules changed. That's when Congress extended -- and expanded -- the tax credit, which was originally scheduled to expire on Nov. 30.

Now, the deadline is April 30, by when all contracts must be signed. (Closings must happen by June 30.) Plus, existing homeowners looking to trade up (or down) can qualify for a $6,500 refund.

And these new buyers can no longer file electronically. They have to mail in paper forms, including the new 5405, whether they are amending their 2008 taxes or claiming it on the 2009 taxes that are being filed this spring.

That is going to dramatically slow refunds, but taxpayers can't blame the IRS. Instead, it's people scamming the system who are at fault.