After getting a few emails from some Lake and Cook County residents about what this stimulus plan means for you, I have put this blog together to answer some of the questions you may have. It is a great time to buy a home in this market. The interest rates are extremely low and prices are affordable. This stimulus plan comes at a great time for those purchases, but also at a time where some of the homeowners in Buffalo Grove and its surrounding areas including Cook and Lake County need some help with mortgage payments. Below you will find a lot of answers to your questions on how this huge government stimulus is going to help you as individuals.

The plan will use $75 billion from the financial bailout fund to help lower interest rates for as many as 4 million at-risk homeowners. The government will share the burden with lenders, collectively reducing payments to 31% of a borrower’s monthly income. Lenders will also reduce payments by forgiving a portion of the principal owed. It will also help as many as 5 million homeowners refinance loans owned or guaranteed by Fannie and Freddie so they can get better rates if the value of their homes has fallen so low that they owe more than the standard 80%. Borrower’s current on their mortgage but who have seen the value of their homes decrease will be able to refinance into a 30-or 15-year, fixed-rate loan. If you owe more money than your home is work you will now be able to refinance as long as it is not over the 105% of the current market value. The criterion for eligibility includes having sufficient income to make the new payment and an acceptable mortgage payment history. Borrowers whose mortgage interest rates are might higher than the current market rate should see an immediate reduction in their payments. Borrowers who are paying interest only, or who have a low introductory rate will increase in the future, may not see their current payment go down if they refinance to a fixed rate, The objective is not to reduce the amount owed on a loan, but to help borrowers refinance into safer more affordable fixed-rate loans. You can start applying March 4^th.

What help is available for borrowers who are at risk of foreclosure either because they are behind on their mortgage or are struggling to make the payments? By providing mortgage lenders with financial incentives to modify existing first mortgages, the treasury hopes to help as many as 3 million to 4 million homeowners avoid foreclosure regardless of who owns the mortgage. Foreclosures in Cook and Lake County are piling up, and this will help people stay in their homes.

 A great incentive to stop waiting, and to get buying! Andee has all the connections to get you set up as a First Time Home Buyer and to receive your $8,000 tax credit. This couldn’t be a better market for those First Time buyers to get into! Buffalo Grove and the surrounding areas including Cook and Lake County have many affordable listings. Contact your “Haus” expert for more information on those affordable homes. Here are some FAQ’s on this amazing opportunity for your first home purchase!

1.       Who is eligible to claim the tax credit?

a.       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 January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.

2.       What is the definition of a First Time Home Buyer?

a.       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.

                                                              i.      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. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies such as a parent jointly purchasing a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify as a buyer as a first-time home buyer.

3.       How is the amount of the tax credit determined?

a.       Equal to 10% of the homes purchase price up to a maximum of $8,000

4.       Are there any income limits?

a.       The tax credit amount is reduced for buyers with a Modified Adjusted Gross Income of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced to zero for taxpayers with a MAGI of more than $95,000 or $170,000 married, and is reduced proportionally for taxpayers with MAGIs between these amounts.

5.       What is a MAGI?

a.       It is defined by the IRS. To find it, a taxpayer must first determine “adjusted gross income” or AGI. AGI is total income for a year minus certain deductions, but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and the first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains. (To determine MAGI, add to AGI certain amounts such as foreign income, foreign housing deductions, student loan deductions, IRA- contribution deductions and deductions for higher –education costs).

6.        If my MAGI is above the limit, do I still qualify for any tax credit?

a.       Possibly. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers who MAGI exceeds the phase-out limits.

7.       Can you give me an example of how the partial tax is determined?

a.       A married couple MAGI is $160,000, ten thousand over the applicable phase-out to qualify for the credit. Dividing 10,000 by 20,000 and that yields .5. Subtract that by 1, and you get .5. Multiply .5 by $8,000 and the result is $4,000.

b.      Assume that an individual home buyer has a MAGI of $88,000. That exceeds the limit by 13,000. Divide $13,000 by 20,000 yields .65. Subtract that by 1 and you get .35. Multiply by 8,000 and that yields a tax credit of $2,800.

8.       How is this tax credit different from the credit Congress enacted in July of 2008?

a.       This tax credit does not have to be repaid. The previous credit acted as an interest free loan since it had to be repaid. This tax incentive is a true tax credit. However, home buyers must use the residence as a principle residence for at least 3 years or face recapture of the tax credit amount. Certain exceptions apply.

9.       How do I claim the tax credit??

a.       You can claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on Line 69 of their 1040 income tax return. No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first time home buyer tests.

10.   What types of homes qualify me for the tax credit?

a.       Any home that will be used as a principal resident will qualify.

11.   What does it mean by the tax being refundable?

a.       It means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

                                                              i.      If a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15^th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).

12.   I purchased a home in Heron’s Landing Long Grove in early 2009 and have already filed to receive the credit on my 2008 tax returns. How can I claim the new credit instead?

a.       Home buyers may file an amended 2008 tax return with a 1040X form. You should consult with a tax advisor to ensure your file this return properly.

13.   Instead of buying a new home in Lincolnshire I hired a contractor. Does that qualify for this tax credit?

a.       Yes. A principal residence that is constructed by the home owner is treated by the tax code as having been “purchased” on the date the owner first occupies the house. In this situation, the date must be on or after January 1, 2009 and before December 1, 2009.

14.    Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond program?

a.       Yes. The tax credit can be combined with the MRB home buyer program. Note that the first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.

15.   Is a tax credit the same as a tax deduction?

a.       No. A credit is a dollar-for-dollar reduction in what the taxpayer owes. That means if someone owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.

16.   I bought my Buffalo Grove home in 2008. Do I qualify for this credit?

a.       No, but if you bought your first home between April 9, 2008 and January 1, 2009 you may qualify for a different tax credit.

17.   Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 tax return?

a.       Yes. Prospective home buyers who believe they qualify are permitted to reduce their income tax withholding. This will enable buyers to accumulate cash by raising their take home pay. This can then be applied to the down payment. *Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment.

18.   If I am qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?

a.       Yes

19.   For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 200-, depending on in which year my credit amount is the largest?

a.       Yes. If the applicable income phase-out would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.

 

*** Andee’s preferred Lender is Domenic Noia. Contact him to get information on financing your home to take advantage of this amazing opportunity!!!!!

 

 

Here are some reference links for you to look at!