Doing your taxes

[Godspeed]

It's going to be at $7500, you won't have to pay it back and you'll be able to use it in the 2008 or 2009 tax year. I haven't been able to find out if it's refundable or not, and if not, if you can spread it over two years.

Do just those who bought in '09 not have to pay it back, or does this change the language of the initial offering for those who bought in '08?

 

And yes, I post here exclusively for the tax advice.

[And That]

I believe it eliminates the repayment retroactively to the previous "credit". So if you've claimed the previous housing credit, you won't have to pay it back.

[fondybrewfan]

It's going to be at $7500, you won't have to pay it back and you'll be able to use it in the 2008 or 2009 tax year. I haven't been able to find out if it's refundable or not, and if not, if you can spread it over two years.

Good deal, I am just going to claim it on 2008's (bought it a week ago today). The current credit is refundable correct? I don't know why the would change it. Converting it to non-refundable would take some cash out of the consumers pocket.

 

I was under the impression that it didn't matter at all if you got a refund or paid in for this credit. If I already get a $4,000 refund then I will get $11,500. If I have to pay in $3,000 I will get $4,500 back and if I have to pay in $8,000 I will actually only have to pay $500.

 

I hope my interpretation is correct.

[And That]

Yah, I don't know why they'd change it from refundable to non-refundable, but since they haven't said for sure either way, you never know. Your interpretation is correct if the credit is indeed refundable.

 

There's also a refundable tax credit in the stimulus called the Make Work Pay Credit that gives a $400 per worker ($800 for dual-earning household). It's been reported as being $500/$1000 in a few places, but I believe my lower number is correct.

[PeaveyFury]

The sad thing is that I plan on taking this credit but I will be using it to pay off credit cards and then put the rest in savings. So it will do absolutely nothing to stimulate the economy.

 

But to get the credit, you bought a house, which is already stimulating the economy.

 

It'll be interesting to see what the final outcome of the credit is. I hope they used common sense and kept it refundable, claimable on 08 returns, and eliminated repayments. Missing one of those three things makes the new credit considerably worse than the old one (and hopefully they eliminate the repayment of those that already claimed it as previously mentioned as well).

[tristarscoop]

If you go to IRS.gov, there is an area that allows you to choose which "free" program you'd like to use. There are different variables for each, but the standard is to have made under $56,000 for the year. Some are free based on age (under 25, over 60).

 

I freelance write, so I'm partially self-employed. I claim things like home office space, utilities, depreciation on my computers and digital camera and car, paper, etc... and I still do my taxes myself. This is my second year. I also have student loan interest to claim. I have W2's, a 1099 and a 1098. Any one of the programs offered on IRS.gov are fine. They take you through step by step, ask which forms you'll be using and make it much easier.

 

Last year I went to H&R Block, they did the whole thing and wanted to charge almost $300. I picked up my stuff and walked out, determined that I could do it for myself.

[PeaveyFury]

Per the Wall Street Journal, the housing credit is upped to 8k, with no repayment, and also still subject to possible negotiation.

 

Should be interesting to see whether it's a revision of the entire credit, or a new credit going forward like the Senate proposed.

 

http://online.wsj.com/art...SB123436825805373367.html

[fondybrewfan]

"The proposal would eliminate the repayment requirement in an existing tax credit for first-time home buyers, and raise the credit to $8,000 from $7,500. Congressional aides cautioned Wednesday that the credit's size was still subject to negotiation"

 

- WSJ

 

Sounds to me like they have wiped out the payment for all first time homebuyers including those bought in 2008. To me it just looks like a revision of the existing credit.

 

A Little off-topic but I do question how this actually stimulates the economy. There was already a $7,500 credit in place, and no one would have had to pay it back until their 2010 returns. So how the heck does that even stimulate the economy? I guess I shouldn't complain though.

 

I hope this things wraps up quickly. Sounds like it will go to a vote today or tomorrow. I would like to get my taxes done this weekend, but I doubt the online tax software will be updated with this new change by then.

[GoudaBrew]

"The proposal would eliminate the repayment requirement in an existing tax credit for first-time home buyers, and raise the credit to $8,000 from $7,500. Congressional aides cautioned Wednesday that the credit's size was still subject to negotiation"

 

- WSJ

 

Sounds to me like they have wiped out the payment for all first time homebuyers including those bought in 2008. To me it just looks like a revision of the existing credit.

 

A Little off-topic but I do question how this actually stimulates the economy. There was already a $7,500 credit in place, and no one would have had to pay it back until their 2010 returns. So how the heck does that even stimulate the economy? I guess I shouldn't complain though.

 

I hope this things wraps up quickly. Sounds like it will go to a vote today or tomorrow. I would like to get my taxes done this weekend, but I doubt the online tax software will be updated with this new change by then.

It'll be sweet if they allow those who purchased after April of '08 to claim the credit without repay. We weren't going to claim it because we see ourselves moving in 5 years or so and if our house value stays around the same (or god forbid, goes down), we'd likely have to owe a sizeable chunk of money if and when we sell.

[JJHardy7]

A Little off-topic but I do question how this actually stimulates the economy. There was already a $7,500 credit in place, and no one would have had to pay it back until their 2010 returns. So how the heck does that even stimulate the economy? I guess I shouldn't complain though.

 

The hope is that it encourages people to buy a house who may be on the fence. I don't know if it will work in theory, but that's the hope. Not only may it encourage those on the fence to purchase a house, but depending on how they spend the $7,500 it can stimulate the economy that way also.

 

It'll be sweet if they allow those who purchased after April of '08 to claim the credit without repay. We weren't going to claim it because we see ourselves moving in 5 years or so and if our house value stays around the same (or god forbid, goes down), we'd likely have to owe a sizeable chunk of money if and when we sell.

 

If I were you, I'd take the credit. There are circumstances where you will not have to be the credit back based on the sales price of your home. Also, it's an interest free loan. If you would take the credit and put it in a high interest savings, you could make hundreds of dollars of interest in a few years. Just a thought...

[Diskono]

It'll be sweet if they allow those who purchased after April of '08 to claim the credit without repay. We weren't going to claim it because we see ourselves moving in 5 years or so and if our house value stays around the same (or god forbid, goes down), we'd likely have to owe a sizeable chunk of money if and when we sell.

I'm pretty sure that if you sell, you only have to repay your profit up to $7500. So if you sell the house for less money, you don't owe anything.

[And That]

The $8000 number is still fluid... it could go up or down. After reading about it a little more in various places, I'm 99% sure it is refundable, but also pretty sure you'll only be able to use it for the 2009 tax year when you file your taxes next year. So if I'm reading it right, it'll supersede the $7500 tax credit that you had to repay, but if the new tax credit is greater than $7500, you won't be able to claim the excess until you file in '10. And you won't be able to claim the new ~$8000 tax credit until you do your taxes in '10.

 

FWIW, this tax credit will probably push my fiance and I to buy a house this summer, instead of later in the year, or next year. So it'll "stimulate" us, as it were.

[Chio151]

A Little off-topic but I do question how this actually stimulates the economy. There was already a $7,500 credit in place, and no one would have had to pay it back until their 2010 returns. So how the heck does that even stimulate the economy? I guess I shouldn't complain though.

It doesn't. It was one of the worst aspects of the whole bill, but also one of the easiest political sellers.

 

http://www.calculatedrisk...will-not-boost-house.html

 

If you have an economic crisis largely influenced by banks lending to people that purchase homes they cannot afford, why is the solution to make it temporarily easier for people who cannot afford homes to purchase them?

 

I apologize to those who were about to use the credit, but I wish it had been eliminated.

 

If they would study the Japanese model, the best investment of stimulus funds is making down payments on large infrastructure and technology that can create long term jobs. The healthcare IT, the broadband, the green technology, the science and education money, and even *some* roads are good uses for the stimulus. Everything else is just temporary. Overall though: a solid 'B' on the final bill.

[GoudaBrew]

The $8000 number is still fluid... it could go up or down. After reading about it a little more in various places, I'm 99% sure it is refundable, but also pretty sure you'll only be able to use it for the 2009 tax year when you file your taxes next year. So if I'm reading it right, it'll supersede the $7500 tax credit that you had to repay, but you won't be able to get anything above the $7500 credit until you file your taxes in '10.

Ok, sorry, but I'm financially illiterate it seems. If I bought my house in July of 2008 I can claim the $7500 tax credit on my '08 taxes (ie, right now) and it won't have to be repaid? Does that seem about right (as far as you can tell from what you've read)?

[And That]

why is the solution to make it temporarily easier for people who cannot afford homes to purchase them?

 

I don't think this statement is on target. Due to the tightening of the credit markets, I believe those people who can not afford a loan to buy a house are not going to be getting a loan from the banks. On the flip side, those people who can pass credit muster (if even just barely), might need some incentive to make a huge financial commitment in this kind of economy. And I think that's where the credit is targetted - people on the fence who can afford it but due to the economy, are hesitant to make the investment.

 

I drive down the street and on any block, it's not unusual to see 2-4 houses for sale. There's a ton of imbalance in the real estate market. The government needed to do something, IMO, to get some of those houses on the market. This is a modest carrot for medium-income home buyers and I think it'll work to some degree. It won't be a real estate cure, but it may help to get the ball rolling.

 

If I bought my house in July of 2008 I can claim the $7500 tax credit on my '08 taxes (ie, right now) and it won't have to be repaid?

With the caveat that the bill isn't done so I have no firm basis of reference, I believe that is correct. I have a tough time believing any of that $7500 will have to be repaid. But I might be wrong about the retroactive-ness of the proposed credit to the extent of getting any additional tax credit above the $7500, or to the repayment piece of the previous credit. It's all educated conjecture.

[fondybrewfan]

It doesn't. It was one of the worst aspects of the whole bill, but also one of the easiest political sellers.

 

http://www.calculatedrisk...will-not-boost-house.html

 

If you have an economic crisis largely influenced by banks lending to people that purchase homes they cannot afford, why is the solution to make it temporarily easier for people who cannot afford homes to purchase them?

 

I apologize to those who were about to use the credit, but I wish it had been eliminated.

 

If they would study the Japanese model, the best investment of stimulus funds is making down payments on large infrastructure and technology that can create long term jobs. The healthcare IT, the broadband, the green technology, the science and education money, and even *some* roads are good uses for the stimulus. Everything else is just temporary. Overall though: a solid 'B' on the final bill.

I think you make a valid point, the WSJ link above says this only accounts for $2B of the total stimulus so it is rather miniscule in the grand scheme of things. But I agree that this probably doesn't do a whole lot to help the economy in the near future. There may be a rush by first time home buyers, but I doubt it.

 

I was going to buy a house and take the credit before this whole stimulus thing came up, I generally think this whole stimulus won't do a darn thing to help the economy, but it will impact me on a personal level.

[Chio151]

why is the solution to make it temporarily easier for people who cannot afford homes to purchase them?

 

I don't think this statement is on target. Due to the tightening of the credit markets, I believe those people who can not afford a loan to buy a house are not going to be getting a loan from the banks. On the flip side, those people who can pass credit muster (if even just barely), might need some incentive to make a huge financial commitment in this kind of economy. And I think that's where the credit is targetted - people on the fence who can afford it but due to the economy, are hesitant to make the investment.

You are correct in the sense that it is more difficult to get loans now than it was 5 years ago. However, even making the assumption that 95% of the people who receive the credit will not end in foreclosure, you still have a 5% foreclosure rate -- which is devastating. Maybe there will be some good coming from this credit. But I think a great deal more good could have come from working more through the FDIC to prevent foreclosures at the ground level. That way, you are reducing housing stock, preserving prices, and adding some security to the market. Even more than that, look at why people are foreclosing in the first place. There are two primary reasons: loss of income or loss of equity. So, we need to add more jobs and stop home prices from falling. Doesn't matter how you do that, as long as you are effective at it. It's a good debate.

 

Maybe 40% of the population just shouldn't own homes: http://www.calculatedrisk...ate-declines-to-2000.html

[And That]

However, even making the assumption that 95% of the people who receive the credit will not end in foreclosure, you still have a 5% foreclosure rate -- which is devastating.

I guess I have to ask... why would you make the assumption of a 5% foreclosure rate for those receiving the credit? The national foreclosure rate has never been that high. I would peg the foreclosure rate linked to those receiving the credit much closer to historical averages in the 1.5% or so range. Like I said, banks won't give people money right now unless they are exceptionally sure of the probability of collection. Furthermore, the vast majority of current foreclosures have to do with subprime lending. That's not happening anymore, either. The foreclosure rate might rise another couple times in the next 6-12 months, but 5% for existing mortgages seems quite high. I don't think new mortgages are going to get anywhere near that.

 

I agree with you that the other side of the equation - people with current mortgages that are slipping close to foreclosure - needs to be handled immediately. I don't think banks are making a great enough effort to work with people on the verge of foreclosure. They are modifying some loans, but a lot of those modifications aren't helping, or are not helping enough. I understand that it isn't a bank's duty to guarantee home ownership, but with all the TARP money flying around, I would think they'd be more strident in their efforts to get people through this economic downturn and then collect on the rest of the loan down the line... even if the balance sheet looks a little worse in the mean time. And this is where the FDIC needs to step in, to work with the banks (do not read: give them more free money/loans at will) to keep people in their homes that can even just barely afford to live there.

 

It's a terribly complicated mess - home sales need to increase, home foreclosures need to decrease, and both of these things need to happen as the economy gets a bit worse. Like I said, the homebuyers tax credit isn't going to be a cure-all, but the economy needs all the nudges in the right direction it can get. And if the banks and the government can step in and push back the tide of impending foreclosures, the rest of the economy will be better for it in the long run.

[Chio151]

However, even making the assumption that 95% of the people who receive the credit will not end in foreclosure, you still have a 5% foreclosure rate -- which is devastating.

I guess I have to ask... why would you make the assumption of a 5% foreclosure rate for those receiving the credit? The national foreclosure rate has never been that high. I would peg the foreclosure rate linked to those receiving the credit much closer to historical averages in the 1.5% or so range. Like I said, banks won't give people money right now unless they are exceptionally sure of the probability of collection. Furthermore, the vast majority of current foreclosures have to do with subprime lending. That's not happening anymore, either. The foreclosure rate might rise another couple times in the next 6-12 months, but 5% for existing mortgages seems quite high. I don't think new mortgages are going to get anywhere near that.

Thanks for the good discussion on this. In my extremely generalized numbers I was using the assumption that new home buyers carry a greater foreclosure rate than people on their 2nd or 3rd home. While the national average as a whole may be less than 5%, the percentage for new home buyers would be higher. I would need to confirm that. I hope you are right that the extreme subprime lending has ceased. If so, there is always a lagging effect on the rest of housing stocks. If we can decrease that, it will help everyone. I just feel that targeting the supply of new foreclosures is more important than increasing the demand to purchase them. By increasing the purchasing of foreclosed homes instead of decreasing the stock, you are effectively allowing the median price to dwindle. There are recent numbers saying that the vast majority of home purchase increases in December were the acquisition of foreclosed homes. That's great, but it creates deflationary market. We need to turn off that spigot.

[PeaveyFury]

So if I'm reading it right, it'll supersede the $7500 tax credit that you had to repay, but if the new tax credit is greater than $7500, you won't be able to claim the excess until you file in '10.

 

Boy, I hope that's not the case. What happens for those that are buying a house and already claimed the credit on their return? Write a $7500 check back to the IRS?

[And That]

What happens for those that are buying a house and already claimed the credit on their return?

 

Again, the language in the stimulus bill isn't official so I can only guess. As of this moment I would guess that if you already filed and the home you bought falls in the buying timeframe of the credit in the stimulus bill, you'll have to wait until '10 to claim the additional credit on your '09 taxes. But... it's not clear if they'll let you claim the additional credit or not.

 

And if you bought the house before the applicable timeframe listed in the stimulus (it might start at Jan. 1 of '09, or go back to June of '08, or any time else), you're just entitled to the original tax credit of $7500. Though I don't think they'll make you repay it.

 

This will all be much more clear by Monday at the latest.

 

Edit: To be clear... my most conservative opinion is that you shouldn't count on any more than $7500, but the odds of having to repay it are very low.

[And That]

I was using the assumption that new home buyers carry a greater foreclosure rate than people on their 2nd or 3rd home. While the national average as a whole may be less than 5%, the percentage for new home buyers would be higher. I would need to confirm that. I hope you are right that the extreme subprime lending has ceased. If so, there is always a lagging effect on the rest of housing stocks. If we can decrease that, it will help everyone. I just feel that targeting the supply of new foreclosures is more important than increasing the demand to purchase them. By increasing the purchasing of foreclosed homes instead of decreasing the stock, you are effectively allowing the median price to dwindle. There are recent numbers saying that the vast majority of home purchase increases in December were the acquisition of foreclosed homes. That's great, but it creates deflationary market. We need to turn off that spigot.

I was using the assumption that new home buyers carry a greater foreclosure rate than people on their 2nd or 3rd home. While the national average as a whole may be less than 5%, the percentage for new home buyers would be higher. I would need to confirm that.

That makes intuitive sense, though I still doubt the historic foreclosure rate for first time homebuyers approaches 5%. The historic foreclosure rates are normally less than 1.5% (and for the most part, less than 1.0%). I'd like to see more data.

 

I just feel that targeting the supply of new foreclosures is more important than increasing the demand to purchase them.

 

Treating the cause of foreclosures is definitely more important than getting foreclosed homes off the market. But once foreclosed homes hit the market, it is very important to get them off the market as soon as possible. Vacant homes don't increase in value (or do so very slowly) in a normal, or even fertile real estate market and for the most part decrease in value. In this market, they are devaluing very quickly. While their new price points will be lower (deflationary) when they are purchased anew, at least they'll be off the market. Foreclosed homes on the market drive the market down. We need to stem the flow of foreclosed homes, no doubt. On the flip side, home values for most everyone are going to keep going down unless homes come off the market. That's the idea behind the tax credit.

[GoudaBrew]

So, what do you make of this?

 

"Temporary credit for home buyers: The bill increases the size of an existing temporary and refundable first-time home buyer credit to $8,000, up from $7,500. It also removes the requirement under current law that the credit be paid back if the buyer stays in the home for at least three years. And it would extend the credit's expiration date to Dec. 1, 2009, from July 1. Those eligible for this credit must have purchased a home after Jan. 1, 2009, and before Dec. 1, 2009."

 

It removes the requirement under current law that the credit be paid back, but to be eligible you must have purchased after Jan. 1 2009? Isn't that kind of contradictory?

 

Link

[And That]

There's really just one credit here... first time home buyers who purchased between 4/9/08-12/31/08 get a tax credit of (up to) $7500 and homes purchased between 1/1/09-12/1/09 get (up to) $8000. The repayment requirement is no longer valid on either version of the credit and both versions are refundable. This is, AFAIK, the final law.

[fondybrewfan]

So how soon would Tax Act alter there software to show the $8,000 credit rather than $7,500? I would hope they would do it ASAP after Obama signs the deal.