Tax Law Blog | IRS Tax Attorneys

Millions of additional people may be able to take advantage of the new and improved first-time home-buyer tax credit now, and it’s not just for first-time home buyers anymore. You may qualify.

President Obama signed legislation Friday to extend unemployment benefits to American workers. The law also includes provisions that vastly expand the number of people eligible for home-buyer credits by boosting the income eligibility limits, giving buyers more time, creating a $6,500 credit for longtime homeowners and launching more-accommodating rules for members of the military. Here are the details.

The $8,000 credit

If you were locked out of the first-time home-buyer credit in the past simply because you earned too much, there’s good news.

Now you can qualify for the full $8,000 first-time home-buyer credit with a single income of up to $125,000 and married income of up to $225,000. Those who earn more will be phased out.

The credit ends completely once single income exceeds $145,000 and married income exceeds $245,000. Still, that’s a big boost from the previous law that shut off the credit for singles earning more than $95,000 and married couples who earned more than $170,000. Other eligibility rules

* You must not have owned another home for at least the previous three years.

* You must buy a home (or have a binding contract to buy) by April 30, 2010. Under the new law, if the sale doesn’t close on time, you can still get the credit as long as you’ve got a binding contract on the ending date, said Jackie Perlman, tax analyst with the Tax Institute at H&R Block in Kansas City.

* You must be older than 18 and not claimed as a dependent by any other taxpayer.

* The property you purchase cannot have been acquired from a relative.

* You must attach a copy of your settlement statement with your tax return to claim the credit.

* Most buyers also must continue to own this new home for at least three years. If they sell in less time, the government will demand that they pay the credit back, said Clint Stretch, director of tax policy with Deloitte Tax.

More »

Relief is on the way for unemployed Americans whose benefits were set to expire.

The House of Representatives approved a bill that includes a provision that will extendunemployment benefits for up to 20 weeks in states with high unemployment rates.

The Senate passed the measure 98-0 late yesterday. The bill is expected to land on the president’s desk Friday, when he is expected to sign it into law.

The bill includes several measures designed to spur the economy, providing unemployment benefits of at least 14 weeks for people out of work, while those in the more than two dozen states with unemployment rates above 8.5 percent would receive up to 20 weeks of benefits.

Source

Utahns can grab a clean-air tax credit for buying a factory-made compressed natural gas car like a Honda Civic GX, or for driving a gas-electric hybrid such as a Toyota Prius.

They can even catch a break with regulator-approved compressed natural gas conversion kits for a truck or minivan.

But if they go all out for cleanliness, with a zero-emissions electric car, there’s no state reward. Kanab restaurateur Victor Cooper found that out the hard way after claiming an $1,800 tax credit that he now has to pay back with interest.

He drives what’s known as a neighborhood electric vehicle, a plug-in that sticks to the 30 mph streets and isn’t much bigger than a golf cart.

“How can a zero-emissions vehicle not get a clean-emissions credit, but a vehicle that does have emissions gets it?” Cooper asked.

“This is idiotic. This is bureaucracy at its worst.”

Lawmakers also were surprised, and one says he’ll work to close the loophole.

“It’s ridiculous that he’s got a car and, to me, it meets the objectives of the law, and yet it doesn’t fit,” said state Rep. Mike Noel, R-Kanab, Cooper’s hometown legislator.

Yet it’s true, and here’s why. Lawmakers wrote the law largely to attract a wave a compressed natural gas [CNG] vehicles to Utah roads, and in 2008 they updated it to reward hybrid gasoline-electric owners as well. But to qualify for credits of up to $2,500 for CNG or $750 for hybrids, the vehicle must compare

More

This week, President Obama signed into law the Car Allowance Rebate System (C.A.R.S.) - a  program that pays consumers up to $4,500 in tax credit for trading in their cars or trucks for more fuel efficient vehicles.

As the New York Times reports, you will need to check if your vehicle qualifies for the trade-in credit. You can check out The National Highway Traffic Safety Administration web site to see if you are eligible to participate in the program. Generally, to qualify your car must be:

• at most 25 years old.

• gets 18 miles a gallon or less.

• drivable.

• registered.

• insured for the past year.

The government, which is very focused on bailing out the devastated automotive industry, is allocating $1 billion for the program.

Source

Earlier this year when federal lawmakers voted to give first-time homebuyers a tax incentive, they hoped the move would boost home sales.

And that seems to be happening.

The offer of an $8,000 tax credit – combined with low mortgage rates – has lured thousands of buyers to the beleaguered housing market.

Keller resident Joe Palacios is one of them. He and his wife are purchasing a new home.

“The tax credit was icing on the cake,” said Palacios, who’s living with friends until the couple’s four-bedroom Pulte home is finished this summer. “My wife and I were looking at apartments that were going for $1,200 a month.

“We decided why not go for a home instead?” he said. “With the mortgage rates being down so low, we had to take advantage of the situation.”

More than half a million homebuyers have been motivated by the temporary tax credit, according to the National Association of Home Builders.

And so far this year, almost half the home sales nationwide have been to first-time buyers, the National Association of Realtors reports.

The surge in buyers is welcome news in a housing market suffering its worst shakeout in generations.

“We are hoping this will help us have a better summer market,” said Teresa Costa, a real estate agent with Dallas’ David Griffin Realtors.

Ms. Costa has been talking up the $8,000 tax credit with potential buyers at an Oak Lawn condo complex she’s marketing.

“We have three units we put under contract in the last couple of weeks,” she said. “And I think all three of them are first-time homebuyers doing that.”

Real estate agent Vivian Vance with Century 21 Judge Fite Co. said the tax credit has already made a difference in her business.
More »

In a policy change that could benefit thousands of people, the federal government announced Friday that its tax credit for first-time homebuyers can now be used to help pay closing costs on mortgages insured by the Federal Housing Administration.

The economic stimulus bill passed in February allows first-time homebuyers a tax credit equal to 10 percent of the home’s purchase price or $8,000, whichever is less, when they file their federal income taxes. But under the plan announced Friday, buyers using FHA-insured loans will be allowed to treat the tax credit as additional down payment funds, or use it to pay for the closing costs that are typically incurred when a mortgage is funded.

“Families will now be able to apply their anticipated tax credit toward their home purchase right away,” said Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, which oversees FHA.

Donovan announced the new use for the home-buying tax credit at a meeting of the National Association of Home Builders’ board of directors, in Washington, D.C.

He also said the government is putting “safeguards in place” to ensure that lenders who are offering the tax-credit advances are not charging “excessive” fees for the service. In a letter to FHA-approved lenders, the agency said fees of more than 2.5 percent of the tax credit are excessive.

FHA loans are insured by the Federal Housing Administration and made through its approved lenders. The loans, whose upper limit is $729,750 in Santa Clara County, typically have lower interest rates than traditional mortgages.

Only qualified buyers using FHA loans can use the tax credit toward down payment or closing costs. Other buyers can take the tax credit when they file their income tax returns.

A few weeks ago, the housing industry was abuzz with news that FHA might allow borrowers to use the tax credit to replace the 3.5 percent minimum down payment required for FHA-insured loans. But the government quickly backpedaled on that idea, which would have resulted in more no-money-down, foreclosure-prone mortgages.

Friday, Donovan specified that FHA borrowers will still need to make down payments of at least 3.5 percent of a home’s purchase price. But the tax credit can be used as an additional down payment amount, which may help borrowers secure a lower interest rate on their loans. It may also be used to pay for closing costs — such as the fees charged for title searches or mortgage applications — which sometimes total thousands of dollars.

Local real estate agents said the change to the tax credit program will help the local housing market somewhat.

“Overall, it is a good thing,” said Karl Lee, a Milpitas broker who is president-elect of the Santa Clara County Association of Realtors.

But the change won’t affect the current market for bank-owned properties, he said. Recently in Santa Clara County, banked-owned, post-foreclosure properties have been garnering multiple purchase offers. And the banks prefer to accept offers on their “REO” (real-estate-owned) properties from non-FHA borrowers when possible, he said, because FHA loans usually take longer to close than traditional loans.

“It may not help with the REO piece of the market,” he said of the new use for the tax credit, “but for the rest of the market it will be a positive impact.”

The tax credit applies to home purchases that close before Dec. 1.

Tax Lawyers:

Chicago Tax Attorneys

Ohio IRS Tax Attorney
Source

In many cases situations involving divorce, or those where a child is born of two parents who are not married, there is a question about who is allowed to take the child as an exemption on their income tax return. With the exemption at $3,650, and a potential tax credit of up to $1,000 per child, this is an important consideration, as the net amount could mean a significant refund to the taxpayer. The issue of who takes the dependent is hopefully determined at the time that the divorce is granted, or by a separation agreement, or by a judgment of the court.

For tax years beginning after July 2, 2008, the IRS has finalized rules that determine the dependency requirements and clarify who is permitted to take the dependent. In most cases, the dependency will be awarded to the custodial parent unless the non-custodial parent obtains a signed waiver for that tax year and attaches it to their income tax return when filed. This rule applies regardless of what the divorce decree says, so it is important within the divorce decree to not only attend to the exemption allowance, but also to the requirement of the non-custodial spouse to sign the waiver.

In some situations, there is a joint custody agreement designating that each parent basically has the right to the child for an equal period of time. If it is not agreed upon, then detailed records should be maintained so that the person claiming the dependency exemption will be in a position to defend the taking of the exemption of dependency if audited. It is often suggested that a calendar be marked with the days and nights the child is living each the parent. It will probably be nearly impossible to reconstruct the calendar years later, when the IRS challenges the dependency.

When both parents claim the dependency, it is likely that the IRS will question both parents and review both tax returns. In normal cases, the parent with the most number of nights will win, but it is important to maintain accurate records, including vacations and times that the child may be with a grandparent so you’re in a position to count the specific number of nights. However, if a parent has a night shift and therefore is not available to watch the child at night, there is a different test that will be applied by the IRS as to the dependency.

For purposes of medical deductions, both parents may be able to take the deductions on their respective returns to the extent that they paid for medical expenses for the child, even if they are not the custodial parent and may not be the parent who is permitted to take the dependency exemptions. In the event that there is a divorce already granted but is in need of a modification for any terms, it is always important to review tax related issues when considering the net result relative to the tax effect.

Source

Adoption credit. The credit allowed for an adoption of a child with special needs is $11,390 and the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $11,390. The credit begins to phase out if you have modified adjusted gross income of $170,820 or more and is completely phased out if you have modified adjusted gross income of $210,820 or more.

Adoption assistance program. You may be able to exclude up to $11,390 from your gross income for qualified adoption expenses paid or incurred by your employer under a qualified adoption assistance program in connection with your adoption of an eligible child. This income exclusion starts to phase out if your modified adjusted gross income is $170,820 or more and is completely phased out if your modified adjusted gross income is $210,820 or more.