Some Tax Credits Running Out

The $100 million allocated by the state of California to cover $10,000 tax credits for buyers of new construction (never lived in) homes has received applications for more than 80% of the fund total. Applications had been averaging about 600/week but last week more than 1,000 were received. At that rate the $100 million will be exhausted in a couple of weeks.

Since applications can only be submitted after you've closed escrow, if you're not already in contract you're probably out of luck. If you are in contract, do everything you can to close before the well runs dry.

The state provides a web site where you can check the most recent statistics.

As of today, it looks like this:

First-time Home Buyer's Credit Explained

Here's a summary of the tax credit for first-time home buyers passed by congress earlier this year:

Who Qualifies?
First-time home buyers who purchase homes
between January 1, 2009 and December 1, 2009. 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.
Which Properties Are Eligible?
The 2009 First-Time Home Buyer Tax Credit may be applied to primary residences, including: single-family homes, condos, townhomes, and co-ops.
How Much Will the Credit Be?
The maximum allowable credit for home buyers is $8,000. Each home buyer’s tax credit is determined by two factors:
>>The price of the home—the credit is equal to 10% of the purchase price of the home, up to $8,000.
>>The buyer's income—single buyers with incomes up to $75,000 and married couples with incomes up to $150,000—may receive the maximum 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 $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.
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 the three-year period, the credit will be recouped on
the sale.

Click here for a document published by the National Association of Realtors® with more details.

Sign of the Times

As if we need more signs of the stagnating real estate market in Marin county, the Marin IJ has published two articles recently that bring the point home.

First, as we reported earlier in our latest monthly report a couple of weeks ago, average selling prices continue to fall.

Second, yet another mortgage broker has called it quits. First Security Loan in San Rafael will close up shop -- just the latest in a series of firms to do so. Not only does this highlight how few real estate transactions there are, it also adds to the unemployment rolls and reduces the sources available for home loans. You see the same signs in the halls of previously bustling escrow/title offices and, of course, some real estate brokerage offices -- empty desks, few people, and phones not ringing.

Change to IRS Rules Excluding Capital Gains from Sale of Principle Residence

Included in the Housing and Economic Recovery Act of 2008 passed last October was a new restriction on how much capital gains from the sale of your principle residence you can exclude from income taxes. This change relates to rental properties or second homes that were subsequently converted to your principle residence. Basically, "the exclusion from capital gains recognition will be reduced by the amount of time the property was not used as a principal residence". It does not apply to situations where you rent out the home after you lived in it as your principle residence for two years or more.

Simple example 1 -- Buy a home and live in it for three years, then rent it for two years. You can exclude up to $250,000 ($500,000 for married couples filing jointly) -- no change.

Simple example 2 -- Buy a property and rent it out for three years, then live in it for two years. You can only exclude two fifths of the capital gains.

These rules are complicated and my examples are intended only to alert you to the change -- certainly not as individual tax advice. We always recommend talking to your professional tax advisor for guidance in your specific situation.