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California Enacts $10,000 Home Buyer Tax Credit

by Samia S. Morgan

The federally funded Home Buyer Tax Credit incentive offered a credit of $8,000 to first-time home buyers, along with a “long-time resident” credit of up to $6,500 to repeat buyers. The deadline for the at large credit was April 30th to have a binding contract and June 30, 2010 to close on the home (the closing date deadline has now been extended to September 30th, 2010.)

The National Association of Realtors reported a significant drop in May of existing home sales and the latest Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions showed a large drop in all home buyer traffic in May. Significantly, most of the drop was attributable to first-time homebuyers, who had been playing a major role in home sales since late last fall. The loss of traffic will result in June and July sales and fall closings.

“The decline of first-time homebuyer traffic is undoubtedly related to the expiration of the federal homebuyer tax credit,” noted Thomas Popik, research director for Campbell Surveys. “Homebuyers had until April 30 to sign a purchase and sale agreement and receive the credit. Once we entered the month of May, the government stimulus disappeared.”

At least one market has responded to loss of the government stimulus. California enacted a new $10,000 first-time homebuyer tax credit just in time to miss the drop cause by the end of the federal Home Buyers credit.

California has one of the highest foreclosure rates in the nation. The bill to enact the tax credit, signed by Gov. Arnold Schwarzenegger in March, provides $200 million for homes purchased between May 1 and Dec. 31 and between Dec. 31 and Aug. 1, 2011.



California Legislation - Tax Credit up to $10,000 to Residents

by Andy Block - Mortgage Advisor

Beginning May 1, new California legislation takes effect that will provide a tax credit up to $10,000 to residents who buy their first home or a newly constructed home.

This legislation allocates $200 million to fund tax credits for qualified home purchases; $100 million is for buyers of new, unoccupied homes and the other $100 million is for first time buyers of existing homes.

The tax credits will be available to home buyers on a first-come, first-served basis. This is an incentive for your buyers to act now (as a reminder, the $100 million allocated for last year’s new home buyer program was depleted in just four months).

A notable feature of this year's legislation is that buyers of newly constructed homes may choose to reserve a tax credit prior to the close of escrow. This will become important as California nears the $100 million cap for homes that may not close escrow before the cap is reached. Buyers that are applying for the First-Time Buyer Credit (purchasing existing homes) will not be able to reserve the tax credit before escrow closes. Details about how to reserve the tax credit can be found here.

Below are some highlights of the new tax credit program:

  • Buyers of existing homes must close escrow between May 1, 2010 and December 31, 2010.
  • Buyers of new homes can reserve their credit by entering into an enforceable contract between May 1, 2010 and December 31, 2010. They must file the proper paperwork with the tax board and close escrow by August 1, 2011.
  • First-time home buyers are eligible whether they buy a newly built or an existing home.
  • Current homeowners looking to trade up must buy a newly built home in order to receive the tax credit.
  • If a taxpayer qualifies for both tax credits, the law specifies that that the New Home Credit be applied (only one tax credit is allowed per taxpayer).
  • The tax credit is worth up to 5% of the purchase price of the home, or $10K, whichever is less.
  • The credit will be allocated evenly over three years. If a buyer qualifies for the full $10,000 tax credit, they’ll get up to $3,333 per year. They will need to consult with their CPA for details and eligibility as related to their specific situation.
  • The buyer cannot be a dependent and the home purchased can't belong to a relative.
  • The buyer is required to live in the home for at least two years or forfeit the credit (i.e., repay it to the state).

And, although it’s a small window, there are some buyers that may be able to combine this new California tax credit with the $8,000 Federal Home Buyer Tax Credit for a total of $18,000 in tax credits. To do so, the purchase contract must be signed by April 30, 2010 (for Federal eligibility) and the purchase must close between May 1, 2010 (when the California program begins) and June 30, 2010 (when the Federal program ends). For the purposes of the California tax credit, the purchase date is defined as the date escrow closes.

As always, please call me to discuss specific situations or to schedule time to review your clients' mortgage or financial strategies.

Andy Block - Mortgage Advisor & Financial Advisor
Opes Advisors

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Direct: 650.931.0605
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Opes Advisors is licensed as a registered investment advisor with the Securities and Exchange Commission (SEC) and is licensed as a Residential Mortgage Lender by the CA Dept of Real Estate.

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Top 10 First-Time Homebuyer Credit Tax Tips

by Samia S. Morgan

IRS Special Edition Tax Tip 2010

There is still time to claim the First-Time Homebuyer Tax Credit on your 2009 tax return. If you purchased or entered into a binding contract to purchase a home in 2009 or early 2010, you may be eligible to claim the First-Time Homebuyer Credit. Claiming this credit might mean a larger refund. Here are 10 things the IRS wants you to know about the First-Time Homebuyer Credit and how to claim it.

  1. You must buy – or enter into a binding contract to buy – a principal residence located in the United States on or before April 30, 2010. If you enter into a binding contract by April 30, 2010, you must close on the home on or before June 30, 2010.
  2. To be considered a first-time homebuyer, you and your spouse – if you are married – must not have jointly or separately owned another principal residence during the three years prior to the date of purchase.
  3. To be considered a long-time resident homebuyer, you and your spouse – if you are married – must have lived in the same principal residence for any consecutive five-year period during the eight-year period that ended on the date the new home is purchased. Additionally, your settlement date must be after November 6, 2009.
  4. The maximum credit for a first-time homebuyer is $8,000. The maximum credit for a long-time resident homebuyer is $6,500.
  5. You must file a paper return and attach Form 5405, First-Time Homebuyer Credit and Repayment of the Credit with additional documents to verify the purchase. Though you cannot file electronically, you can still use IRS Free File or tax-preparation software to prepare your return. The return must then be printed out and sent to the IRS, along with all required documentation.
  6. If before May 1, 2010, you enter into a binding contract to purchase a home before July 1, 2010, and you are claiming the credit, attach a copy of the pages from the signed binding contract to make a purchase showing all parties' names and signatures, the property address, the purchase price and the date of the contract. 
  7. New homebuyers must attach a copy of a properly executed settlement statement used to complete such purchase. Generally, a properly executed settlement statement shows all parties' names and signatures, property address, sales price and date of purchase. However, settlement documents, including the Form HUD-1, can vary from one location to another and may not include the signatures of both the buyer and seller. In areas where signatures are not required on the settlement document, the IRS encourages buyers to sign the settlement statement when they file their tax return -- even in cases where the settlement form does not include a signature line.
  8. Buyers of a newly constructed home, where a settlement statement is not available, must attach a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate.
  9. Purchasers of mobile homes who are unable to get a settlement statement must attach a copy of the executed retail sales contract showing all parties' names and signatures, property address, purchase price and date of purchase.
  10. If you are a long-time resident claiming the credit, the IRS recommends that you also attach documentation covering the five-consecutive-year period such as Form 1098, Mortgage Interest Statement or substitute mortgage interest statements, property tax records or homeowner’s insurance records.

For more information about the First-Time Homebuyer Tax Credit and the documentation requirements, visit


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New Homebuyer Credit - Claim It:  English | Spanish | ASL

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Homeowner Tax Credits

by Samia S. Morgan

Tax season is in full swing and while tax time is dreaded by many, homeowners are typically able to deduct many home-related expenses. Below are a few of the deductions that are typically available for homeowners.Because there are many different tax laws it is a good idea to check with a qualified tax advisor to find out which deductions apply to you.

First-time homebuyer credit.  A $7,500 tax credit is available to eligible taxpayers must have bought, buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010 and close on the home by June 30, 2010. For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return. and before July 1, 2009.  You are considered a first-time home buyer as long as you did not own a home during the three years leading up to the purchase of your new home.

Moving expenses. If a move is connected with taking a new job that is at least 50 miles farther from your old home than your old job was, you can deduct travel and lodging expenses for you and your family and the cost of moving your household goods.

Deducting Loan Points Paid on a Purchase or Refinance. The points you pay on a loan for a home purchase are tax-deductible for the year you made the purchase. You can deduct the points you paid as well as those a seller paid on your behalf if you meet the following criteria:

  •   The loan is secured by your primary residence
  •   The loan was used to buy, improve or build the home
  •   Paying points is a common practice in your geographic area
  •   The points are calculated as a percentage of the loan principal

Deducting Real Estate Taxes. Real estate taxes are deductible in the year paid. They are generally reported on Form 1098, Mortgage Interest Statement, the annual statement from the financial institution holding your mortgage, or on your county real estate tax assessment statement. You should also deduct any prorated taxes collected from you at closing. These amounts are not always included on Form 1098, but may be itemized on your real estate closing statement.


Homebuyer Tax Credit Extended

by Samia S. Morgan

The homebuyer tax credit that was to expire on November 30th will now be in effect through the end of June. Homebuyers must sign a contract before April 30 and close by June 30. The income limits were also raised: Single buyers can now earn up to $125,000 and still get the full credit while a married couple can earn $225,000.

The bill which was signed into law by President Obama on Friday also made more homeowners eligible to claim the credit on their taxes. First-time buyers -- those who have not owned a home in the past three years, can qualify. Those who have owned and occupied a residence for at least five years out of the past eight can claim a $6,500 tax credit if they close on a purchase by the end of June. These tax credits are available for the purchase of principal homes costing $800,000 or less.

Deadline for qualifying: Purchase agreements must be signed by April 30, 2010, and closings must be final by June 30. Military deadline: The deadline is extended by a year for members of the military who have served outside the U.S. for at least 90 days from Jan. 1, 2009, to May 1, 2010.

The National Association of Realtors estimates that of the 1,400,000 million buyers, 350,000 of them would not have purchased a home without the added taxpayer’s incentive from the federal government.

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