Jeffrey Simons - Orange County Real Estate Consultant

Recently I had a client ask a very profound question… Will I have to pay capital gains or taxes on the $8,000.00 tax credit that I collect when I sell my home and does this money need to be paid back? The best way to answer this is MAYBE. It depends on which credit you took, when your home closed escrow, and when you will be selling your home. According to William Perez, About.com guide, he outlines the program and information as follows:

First-Time Homebuyer Tax Credit – Up to $8,000 federal tax credit for first-time home buyers

Quick Summary of the First-Time Homebuyer Credit

For 2008: up to $7,500, the credit is paid back over 15 years.
For Jan – Nov 2009: up to $8,000, the credit does not need to be paid back.

For Dec 2009 – April 2010: up to $8,000 for first-time buyers, the credit does not need to be paid back.

For Nov 7, 2009 – April 2010: up to $6,500 for “long-term residents” buying a new home, the credit does not need to be paid back.

Until April 30, 2011: homebuyer credit continues to be available for qualified members of the U.S. uniformed services.

Dollar Amounts of the Homebuyer Tax Credit

The tax credit is worth 10% of the purchase price of the home. For 2008, the maximum credit is $7,500 ($3,750 for married couples filing separate returns). The credit is also limited to the same $7,500 maximum for unmarried persons who purchase a residence together.
For 2009 and 2010, the maximum credit is $8,000 (or $4,000 for married couples filing separately).

Long-term residents purchasing a new home have a lower maximum credit of $6,500, or $3,250 for married couples filing separate returns.

Limit based on Maximum Purchase Price

No tax credit is allowed if the purchase price of the home exceeds $800,000. There’s no phase-out or gradual reduction of the credit.
Qualifying as a First-Time Homebuyer

For the purpose of this tax credit, a first-time homebuyer is defined as someone who has not owned a primary residence in the three-year period ending on the date of purchasing the home. Married couples are considered first-time buyers if neither spouse has owned a residence in the previous three years.
Qualifying as a Long-Term Resident Homebuyer

People who already own a home can qualify for the tax credit if they buy another home. To qualify, individuals needs to have owned and lived in their residence for at least five consecutive years in the eight-year period that ends on the purchase date of the new property.
Extended Deadline for Qualifying Servicemembers

People serving in the U.S. military, intelligence community or Foreign Service on official extended duty outside of the U.S. have an additional year to qualify for the homebuyer credit.
Limited Time Period for Purchasing a Residence

The credit has a very limited life-span. Individuals will need to purchase a residence after April 9, 2008, and before May 1, 2010. Qualified servicemembers must purchase a residence before May 1, 2011.
What’s a Primary Residence

A primary residence is a residence in which an individual lives most of the time. A primary residence can be a house, condominium, co-operative apartment, houseboat, or mobile home.
Because the tax credit is for people who purchase their primary residence, individuals may qualify for the tax credit even if they own a vacation home or rental property as long as those properties were not their primary residence for at least three years preceding the purchase of their new home.

Income Phase-out Range

The credit is phased out for individuals with modified adjusted gross income between $75,000 and $95,000. For married couples filing a joint return, the phase out range is $150,000 to $170,000. Effective Nov 6, 2009, the phase out ranges start at $125,000, or $225,000 for married couples.
Modified AGI for the First-Time Homebuyer Credit

To determine if the tax credit is reduced or eliminated by the income phase-out range, individuals will need to determine their modified adjusted gross income.
For the purposes of determining income eligibility for this credit, adjusted gross income is modified by adding back the following excluded income:

foreign earned income;
income from Guam, American Samoa, or the Northern Mariana Islands;
income from Puerto Rico.
When to Claim the Credit

The credit is fully refundable, meaning taxpayers will be able to obtain an additional federal tax refund of up to $7,500 even if they have no other tax liabilities.
Taxpayers will be able to claim the credit on their 2008 tax return for homes purchased in 2008. For homes purchased in 2009, the IRS will allow the purchasers to file an amended 2008 return to claim the credit. For the 2009 tax credit to show up on the 2008 return, taxpayers will need to elect to treat the 2009 home purchase as if it were made on December 31, 2008. Guidance released by the IRS provides that taxpayers making this election are eligible for the higher $8,000 tax credit amount and do not need to repay the credit if they take their 2009 credit on their 2008 tax return. Similarly, for homes purchased in 2010, the credit can be taken either on a 2009 tax return or on the 2010 tax return.

Repaying the First-Time Homebuyer Credit

The 2008 credit needs to be repaid in equal installments over 15 years. Unlike any other tax credit, the first-time homebuyer credit must be repaid over 15 years. This pay-back feature applies only to homes purchased in 2008. The credit will works like this: you’ll get your refund when you file the tax return. Then the credit will be repaid as an additional tax on your tax return for the next fifteen years, starting with the 2010 tax return. For the maximum $7,500 credit, this works out to annual repayments of $500 per year. This tax credit amounts to an interest-free 15-year loan for first-time homebuyers.
The credit will also need to be repaid in full if the taxpayer sells the house within the fifteen-year repayment period. The credit also needs to be repaid in full if the property is no longer the taxpayer’s primary residence. The credit will be disallowed if a taxpayer sells the house before the end of the same year in which the house was purchased.

Additional information can be found on his article at:http://taxes.about.com/od/deductionscredits/qt/homebuyercredit.htm

Please contact your tax advisor for immediate tax help or if you need a great introduction, contact Edwin Simons at Simons Accountancy Corp. Ed can be reached via email at ed@simonscorp.com or via the web at www.simonscorp.com

By DAVID STREITFELD * The NY Times – Published: August 22, 2010

Housing will eventually recover from its great swoon. But many real estate experts now believe that home ownership will never again yield rewards like those enjoyed in the second half of the 20th century, when houses not only provided shelter but also a plump nest egg.

The wealth generated by housing in those decades, particularly on the coasts, did more than assure the owners a comfortable retirement. It powered the economy, paying for the education of children and grandchildren, keeping the cruise ships and golf courses full and the restaurants humming.

More than likely, that era is gone for good.

“There is no iron law that real estate must appreciate,” said Stan Humphries, chief economist for the real estate site Zillow. “All those theories advanced during the boom about why housing is special — that more people are choosing to spend more on housing, that more people are moving to the coasts, that we were running out of usable land — didn’t hold up.”

Instead, Mr. Humphries and other economists say, housing values will only keep up with inflation. A home will return the money an owner puts in each month, but will not multiply the investment.

Dean Baker, co-director of the Center for Economic and Policy Research, estimates that it will take 20 years to recoup the $6 trillion of housing wealth that has been lost since 2005. After adjusting for inflation, values will never catch up.

“People shouldn’t look at a home as a way to make money because it won’t,” Mr. Baker said.

If the long term is grim, the short term is grimmer. Housing experts are bracing themselves for Tuesday, when the sales figures for July will be released. The data is expected to show a drop of as much as 20 percent from last year.

The supply of homes sitting on the market might rise to as much as 12 months, about twice the level of a healthy market. That would push down prices as all those sellers compete to secure a buyer, adding to a slide that has already chopped off as much as 30 percent in home values.

Set against this dismal present and a bleak future, buying a home is a willful act of optimism. That explains why Adam and Allison Lyons are waiting to close on a $417,500 house in Deerfield, Ill.

“We’re trying not to think too far ahead,” said Ms. Lyons, 35, an information technology manager.

The couple’s first venture into real estate came in 2003 when they bought a condo in a 17-unit building under construction in Chicago. By the time they moved in two years later, it was already worth $50,000 more than they had paid. “We were thinking, great!” said Mr. Lyons, 34.

That quick appreciation started them on the same track as their parents, who watched the value of their houses ascend for decades. The real estate crash interrupted that pleasant dream. The couple cannot sell their condo. Unwillingly, they are becoming landlords.

“I don’t think we’re ever going to see the prosperity our parents did, but I don’t think it’s all doom and gloom either,” said Mr. Lyons, a manager at I.B.M. “At some point, you just have to say what the heck and go for it.”

Other buyers have grand and even grander expectations.

In an annual survey conducted by the economists Robert J. Shiller and Karl E. Case, hundreds of new owners in four communities — Alameda County near San Francisco, Boston, Orange County south of Los Angeles, and Milwaukee — once again said they believed prices would rise about 10 percent a year for the next decade.

With minor swings in sentiment, the latest results reflect what new buyers always seem to feel. At the boom’s peak in 2005, they said prices would go up. When the market was sliding in 2008, they still said prices would go up.

“People think it’s a law of nature,” said Mr. Shiller, who teaches at Yale.

For the first half of the 20th century, he said, expectations followed the opposite path. Houses were seen the way cars are now: as a consumer durable that the buyer eventually used up.

The notion of housing as an investment first began to blossom after World War II, when the nesting urges of returning soldiers created a construction boom. Demand was stoked as their bumper crop of children grew up and bought places of their own. The inflation of the 1970s, which increased the value of hard assets, and liberal tax policies both helped make housing a good bet. So did the long decline in mortgage rates from the early 1980s.

Despite all these tailwinds, prices rose modestly for much of the period. Real home prices increased 1.1 percent a year after inflation, according to Mr. Shiller’s research.

By the late 1990s, however, the rate was 4 percent a year. Happy homeowners were taking about $100 billion a year out of their houses, which paid for a lot of good times.

“The experience we had from the late 1970s to the late 1990s was an aberration,” said Barry Ritholtz of the equity research firm Fusion IQ. “People shouldn’t be holding their breath waiting for it to happen again.”

Not everyone views the notion of real appreciation in real estate as a lost cause.

Bob Walters, chief economist of the online mortgage firm Quicken, acknowledges that the recent collapse will create a “mind scar” just as the Great Depression did. But he argues that housing remains unique.

“You have to live somewhere,” he said. “In three or four years, people will resume a normal course, and home values will continue to increase.”

All homes are different, and some neighborhoods and regions will rebound more quickly. On the other hand, areas where there was intense overbuilding, like Arizona, will be extremely slow to show any sign of renewal.

“It’s entirely likely that markets like Arizona will not recover even in the 15- to 20-year time frame,” said Mr. Humphries of Zillow. “The demand doesn’t exist.”

Owners in those foreclosure-plagued areas consider themselves lucky if they are still solvent. But that does not prevent the occasional regret that a life-changing sum of money was so briefly within their grasp.

Robert Austin, a Phoenix lawyer, paid $200,000 for his home in 2000. Five years later, his neighbors listed a similar home for $500,000.

Freedom beckoned. “I thought, when my daughter gets out of school, I can sell the house and buy a boat and sail around the world,” said Mr. Austin, 56.

His home is now worth about what he paid for it. As for that cruise, “it may be a while,” Mr. Austin said. Showing the hopefulness that is apparently innate to homeowners, he added: “But I won’t rule it out forever.”

A version of this article appeared in print on August 23, 2010, on page A1 of the New York edition.

Industry participants have stated this for years and now the media is addressing the validity of these online web sites. While they do provide a basic service, along with a decent valuation; the true value of your home can only be determined by the market, not an appraiser, not a Realtor, and not a seller… but the market itself. Your thoughts? Click on the comment section below and let me know…

By Jim Wasserman at the Sacramento Bee * jwasserman@sacbee.com * Published: Friday, Aug. 13, 2010 – 12:00 am | Page 1B

One of the most phenomenal new developments in real estate over the past five years is the ability to look up your home’s approximate value online.

Since Zillow.com launched in February 2006, millions of people now turn to keyboards and mobile phones, punching in home addresses. Here again, the digital revolution freed data from experts and democratized it for the masses.

A number of companies now compete for the eyeballs of homeowners, and the advertising they sell. If you don’t like Zillow’s free estimate of your value, you can get another at Cyberhomes.com, or another at Eppraisal.com.

But here’s the question: How accurate are these sites, really? These are computers talking back at you. They assign your house a value without seeing it and without knowing the neighborhood. Then they hedge their bets with a price range of $20,000 to $40,000 on either side of that value.

Seattle-based Zillow doesn’t claim to be right on the money. But the firm’s chief economist, Stan Humphries, said Thursday, “Our accuracy in the Sacramento metro is very good.” He said “roughly half of homes sold in the metro sell for within 10 percent of the Zestimate.” That’s Zillow’s trade word for estimated values.

Despite that contention, some appraisers and real estate agents hold dim views of Zillow and competitors.

“All these data sources are OK for basic tract homes that have no upgrades or are in average condition,” said Colleen Tiner, who owns Tiner Appraisals in Fair Oaks.

“But when you get anything that’s off average Zillow doesn’t apply at all.”

These online sites, powered by what’s called automated valuation models, have the hardest time in irregular neighborhoods.

If you live on the nicest street of an average neighborhood that’s bordered by a declining neighborhood, the free sites can appear to toss darts at the wall.

An acquaintance in this situation in Sacramento County got three values ranging from $99,000 to $217,000.

Humphries acknowledged that Zillow’s accuracy improves with “the proximity of comparable homes.”

Agents do praise one thing about Web estimates. They educate clients, said Frederick Kuo, broker associate with Prudential NorCal Realty in Carmichael.

“I feel like the greater wealth of information has actually helped me with some clients. They have a more realistic understanding of the market and the process they’ll be going through as a buyer,” he said.

His complaint, though, is about actual values, and Zillow’s in particular. Judging by sales prices, Kuo believes the site “tends to be about 20 percent over actual values” in both newer, homogenized neighborhoods and mixed older ones.

Computers see houses objectively, said Tiner. She said, “We have the experience to estimate the subjectiveness to an appraisal.”

That’s old-fashioned shoe leather that goes beyond algorithms. It’s about knowing neighborhoods, seeing the remodeled kitchen and knowing what a view of the lake is worth.

Zillow’s Humphries said computers can learn.

“Our computer models train themselves daily as new information, such as home sales or user-contributed facts, becomes available,” he said Thursday.

Zillow claims 12 million visitors monthly. Yet a home’s real value always comes down to the oldest formula on Earth: what’s agreed to in a handshake.

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