$6,500 Tax Credit

by Joel Barkman, NVBIA Fauquier County Chapter President

With 2009 in our rearview mirror and the journey into 2010 just beginning, I want to thank all of you who contributed to Golden Rule Builders' success! Fauquier County has been our home for the past 22 years and I want to honor you - the many clients and businesses who entrusted us with likely the biggest and best investment you will ever make - your home.

A ringing phone is usually a good indicator, and I can tell by talking with many of you that more and more folks are realizing that now is the time to build; with interest rates at an all time low, intense pressure to keep material prices low, and an extremely competitive market.

We will likely see at least two of these equations changing in 2010 - interest rates and material prices. And as the mortgage industry remains a variable, in today's market it is imperative that you have saved some cash or equity to accommodate the lending requirements.

Many potential home purchasers are being severely hampered by stricter lending guidelines and questionable appraisal practices but there is hope.

Late last year as the $8,000 first-time home buyer tax credit was set to expire I was pleased to lend a hand to congratulate Congress for passing legislation that will extend and expand the $8,000 first-time home buyer tax credit.

By now we have all been programmed to receive the message, "$8,000 for first-time buyers." An important yet time-sensitive message.

If we are to carry over any semblance of economic recovery in 2010 we need to hit the ground running. I would like to focus on the "expanded" portion of the tax credit because already we are faced with new deadlines.

Qualified move-up or repeat home buyers purchasing any kind of home are eligible to claim a $6,500 tax credit.

The law defines a tax credit qualified move-up home buyer ("long-time resident") as a person who has owned and resided in the same home for at least five consecutive years of the eight years prior to the purchase date.

Important dates to remember: November 6, 2009; and June 30, 2010.

For those who wish to have their new home constructed the date of first occupancy must be after November 6, 2009 and on or before April 30, 2010 (or by June 30, 2010, provided a binding sales contract was in force by April 30, 2010).

Additional points of interest pertain to how the tax credit can be used and at what stage during the building or buying process.

Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.

Also, HUD will allow buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 or 2010 income taxes to receive a refund. These funds may be used for certain downpayment and closing cost expenses.

Under the guidelines announced by HUD, non-profits and FHA-approved lenders are allowed to give home buyers short-term loans.

Housing finance agencies and other government entities may also issue tax credit loans, which home buyers may use to satisfy the FHA 3.5 percent downpayment requirement.

In addition, approved FHA lenders can purchase a home buyer's anticipated tax credit to pay closing costs and downpayment costs above the 3.5 percent downpayment that is required for FHA-insured homes.

The income eligibility limits to claim the full credit amount for home buyers have been raised to $125,000 for individuals and $225,000 for married couples.

To claim the tax credit on your federal income tax return home buyers should complete IRS Form 5405 to determine their tax credit amount.

No other applications are required, and no pre-approval is necessary. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase.

Attach a copy of your HUD-1 settlement form (closing statement) to Form 5405 as proof of the completed home purchase.

Remember, any home that will be used as a principal residence will qualify for the credit, provided the home is purchased for a price less than or equal to $800,000.

This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats.

As a reminder, a new year does not mean we hit the reset button - the clock is still ticking.

I am glad to provide you with very basic information regarding the tax credit, but when it comes to making decisions that will affect your family's income or legal status please consult with professional tax, accounting, legal, or other competent advisers.

When it comes to your home, just "Ask a Builder."

In closing, thank you all once again. It is a continuing honor to serve as the president of the local chapter of The Northern Virginia Building Industry Association (NVBIA).

A big thanks to the council members who have contributed so much in 2009. Celebrating with lunch on New Year's Eve at the Iron Bridge was an appropriate way to close out the year!

Our next NVBIA event is a mixer at McMahon's on January the 12th, thanks to Ken Thacker with NOVA Spray Foam Insulation for sponsoring this event. We will continue to educate and raise the standard in the building industry!

Have a happy and prosperous New Year, and as always e-mail your questions or comments to joel@goldenrulebuilders.com or write to "Ask a Builder" at P.O. box 294, Catlett, VA 20119.

Barkman is president of the Fauquier Chapter of The Northern Virginia Building Industry Association.

Read Joel's column weekly in the