Home buyer tax credit can be applied to purchase costs U.S. Dept. of Housing and Urban Development (HUD) Secretary Shaun Donovan recently announced that the Federal Housing Administration (FHA) will allow home buyers to apply the administration's new $8,000 first-time home buyer tax credit toward the purchase costs of a FHA-insured home. The American Recovery and Reinvestment Act of 2009 offers home buyers a tax credit of up to $8,000 for purchasing their first home.
Families can only access this credit after filing their tax returns with the IRS. Home buyers using FHA-approved lenders can apply the tax credit to their down payment in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate.
Currently, borrowers applying for an FHA-insured mortgage are required to make a minimum 3.5 percent down payment on the purchase of their home. Current law does not permit approved lenders to monetize the tax credit to meet the required 3.5 percent minimum down payment, but, under the terms of the announcement, lenders can now monetize the tax credit for use as additional down payment, or for other closing costs, which can help achieve a lower interest rate.
Source: California Association of Realtors
Showing posts with label IRS. Show all posts
Showing posts with label IRS. Show all posts
Wednesday, June 10, 2009
Monday, January 26, 2009
Dealing with Appreciated Real Estate -- Is a 1031 Exchange Right for You?
Dealing with Appreciated Real Estate
One downside of real estate investments is that they are not liquid assets like stocks or bonds. Even in today's booming market, it can sometimes take more than a year to settle a real estate deal. If you've decided to sell your real estate and get out while the getting is good, you may be faced with a hefty tax bill on your gain. You could mitigate this tax burden by controlling the year in which title and possession passes and, therefore, the year in which you report the profit or loss on the transaction. In other words, you can set the transfer of ownership to a year in which you expect to have a lower tax burden. However, if your income is steady and paying tax on the gain looks inevitable, you may want to consider using the IRC Section 1031 exchange. (For further reading, see A Long-Term Mindset Meets Dreaded Capital Gains Tax.)
The 1031 Exchange
The 1031 exchange allows an investor to trade real estate held for investment for other investment real estate and incur no immediate tax liabilities. Under Section 1031, if you exchange business or investment property solely for business or investment property of a like kind, no gain or loss is recognized until the newly acquired property is sold. Keep in mind that Section 1031 does not apply to exchanges of inventory, stocks, bonds, notes, evidence of indebtedness and certain other assets.
Fully Tax-Free Exchange
For a tax-free 1031 exchange transaction to occur, certain conditions must be met:
Property must be "like kind" - Properties are like kind if they are of the same nature or character, even if they differ in grade or quality.
Property must be related to business or investment - Exchanged property must be held for productive business or investment use and traded for the same use.
New property must be identified within 45 days - The new property that you intend to receive in exchange for your existing property must be identified in writing within 45 days of the first transfer.
Transfer must take place within the 180-day window - The like-kind property must be received by one of these two dates (whichever comes sooner): within the 180-day period following the property transfer, or by your tax return due date (including extensions) for the year in which you transferred the property.
One downside of real estate investments is that they are not liquid assets like stocks or bonds. Even in today's booming market, it can sometimes take more than a year to settle a real estate deal. If you've decided to sell your real estate and get out while the getting is good, you may be faced with a hefty tax bill on your gain. You could mitigate this tax burden by controlling the year in which title and possession passes and, therefore, the year in which you report the profit or loss on the transaction. In other words, you can set the transfer of ownership to a year in which you expect to have a lower tax burden. However, if your income is steady and paying tax on the gain looks inevitable, you may want to consider using the IRC Section 1031 exchange. (For further reading, see A Long-Term Mindset Meets Dreaded Capital Gains Tax.)
The 1031 Exchange
The 1031 exchange allows an investor to trade real estate held for investment for other investment real estate and incur no immediate tax liabilities. Under Section 1031, if you exchange business or investment property solely for business or investment property of a like kind, no gain or loss is recognized until the newly acquired property is sold. Keep in mind that Section 1031 does not apply to exchanges of inventory, stocks, bonds, notes, evidence of indebtedness and certain other assets.
Fully Tax-Free Exchange
For a tax-free 1031 exchange transaction to occur, certain conditions must be met:
Property must be "like kind" - Properties are like kind if they are of the same nature or character, even if they differ in grade or quality.
Property must be related to business or investment - Exchanged property must be held for productive business or investment use and traded for the same use.
New property must be identified within 45 days - The new property that you intend to receive in exchange for your existing property must be identified in writing within 45 days of the first transfer.
Transfer must take place within the 180-day window - The like-kind property must be received by one of these two dates (whichever comes sooner): within the 180-day period following the property transfer, or by your tax return due date (including extensions) for the year in which you transferred the property.
Tuesday, December 16, 2008
IRS to help homeowners refinance or sell homes
WASHINGTON – The Internal Revenue Service said Tuesday it will try to make it easier for homeowners in financial straits to refinance or sell their homes.
The plan announced by IRS Commissioner Doug Shulman would speed up a process where financially distressed homeowners may request that a federal tax lien be made secondary to liens by the lending institution that is refinancing or restructuring a loan.
Taxpayers will also be able to ask the IRS to discharge, or remove, its claim to a property in certain circumstances where the property is being sold for less than the amount of the mortgage lien.
"We need to ensure that we balance our responsibility to enforce the law with the economic realities facing many American citizens today," Shulman said, stressing that "we don't want the IRS to be a barrier to people saving or selling their homes."
He said the program will focus on those people who ordinarily pay their taxes in full but "because of these extraordinary times are getting behind in their tax payments."
A tax lien occurs when the government makes a legal claim to property as security or payment for a tax debt. The government thus notifies other creditors that it has a claim on the property.
The IRS can rule that its lien will be secondary to another lien, such as that of a lending institution, if it determines that taking a subordinate position will ultimately help with the collection of the tax debt. Taxpayers or their representatives may apply for a "subordination" of a tax lien if they are refinancing or restructuring their mortgage.
Lending institutions generally want their lien to have priority on the home being used as collateral.
Taxpayers may also request a certificate of discharge if they are giving up ownership of the property at an amount less than the mortgage lien if the mortgage lien is senior to the tax lien. A discharge does not relieve a person of the tax that is owed, but it does remove the lien on a particular property such as a home. The IRS would still maintain its lien on other possessions of the taxpayer.
Normally it takes about 30 days to rule on a request for a discharge or subordination of a tax lien, but Shulman said the IRS will work to speed up that process so there would be no delays for people trying to obtain new mortgage loans. The IRS urged people to contact the agency's Collection Advisory Group early in the home sale or refinancing process.
The agency said it issues more than 600,000 federal tax lien notices annually and that currently there are more than 1 million outstanding tax liens tied to both real and personal property.
The plan announced by IRS Commissioner Doug Shulman would speed up a process where financially distressed homeowners may request that a federal tax lien be made secondary to liens by the lending institution that is refinancing or restructuring a loan.
Taxpayers will also be able to ask the IRS to discharge, or remove, its claim to a property in certain circumstances where the property is being sold for less than the amount of the mortgage lien.
"We need to ensure that we balance our responsibility to enforce the law with the economic realities facing many American citizens today," Shulman said, stressing that "we don't want the IRS to be a barrier to people saving or selling their homes."
He said the program will focus on those people who ordinarily pay their taxes in full but "because of these extraordinary times are getting behind in their tax payments."
A tax lien occurs when the government makes a legal claim to property as security or payment for a tax debt. The government thus notifies other creditors that it has a claim on the property.
The IRS can rule that its lien will be secondary to another lien, such as that of a lending institution, if it determines that taking a subordinate position will ultimately help with the collection of the tax debt. Taxpayers or their representatives may apply for a "subordination" of a tax lien if they are refinancing or restructuring their mortgage.
Lending institutions generally want their lien to have priority on the home being used as collateral.
Taxpayers may also request a certificate of discharge if they are giving up ownership of the property at an amount less than the mortgage lien if the mortgage lien is senior to the tax lien. A discharge does not relieve a person of the tax that is owed, but it does remove the lien on a particular property such as a home. The IRS would still maintain its lien on other possessions of the taxpayer.
Normally it takes about 30 days to rule on a request for a discharge or subordination of a tax lien, but Shulman said the IRS will work to speed up that process so there would be no delays for people trying to obtain new mortgage loans. The IRS urged people to contact the agency's Collection Advisory Group early in the home sale or refinancing process.
The agency said it issues more than 600,000 federal tax lien notices annually and that currently there are more than 1 million outstanding tax liens tied to both real and personal property.
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