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Revised to include new 5405 instructions

The world of residential real estate in the U.S. is facing an expiration date of historic proportions in 2010 that buyers and sellers need to pay attention to for a variety of reasons. April 30, 2010 is the last day that buyers and sellers can “enter into a binding contract” for a real estate transaction to qualify for the two, limited time, federal tax credits for buyers of residential real estate.

Having a strategic real estate plan in early 2010 is essential for both sellers and buyers of primary residences especially before the ship has sailed… and it will. Hey, I’m just a real estate agent so ask your tax adviser what’s best for your tax situation.

Attention home Sellers, it ain’t just for first-time home Buyers this time!

Way back in November ’09 when first-time buyers were in a frenzy to close on a home before November 30th, Congress passed The Worker, Homeownership, and Business Assistance Act of 2009 to extend the first-time home buyer tax credit and add a new tax credit for “long-time resident” homeowners. So now the move-up home seller group or downsizing home seller needs a clear strategy for getting a contract on their existing home and then a contract on their new home. These tax credits are for principal or primary home purchases and not intended for investors or people buying second homes.

Home Sellers, if you had planned on moving-up or down this year, then you should realize that buyers this winter have a deadline or extra motivation to snatch-up your home. This is important especially since home inventories are low in many areas (supply vs. demand). And then, once you have that contract in hand,  you can put in a contract on your new home before the April 30th deadline for the “long-term resident” credit if you qualify.

If you are thinking of just waiting until the Traditional Spring Market in 2010, then you really need to think again. Waiting until May to put your home on the market is a strategic error. The motivation of the tax credit can act a little like rocket fuel to qualified buyers to enter into contracts by the April 30 deadline, and I witnessed that phenomenon in the Northern Virginia real estate market last fall as the original deadline approached. This credit is essentially up to $8,000 cash to the first-time home buyer… and that will buy a lot of home furnishings!

I forecast 45% of 2010′s real estate sales are “in escrow” during this period

Here are the important dates as posted on IRS.gov:

• Binding Contract by April 30, 2010
• Must Settle on the Purchase by June 30, 2010

First-Time Homebuyer Credit details:

• Buyer who have not owned a primary residence during the three years up to date of purchase
• No one under 18 years old
• Modified Adjusted Gross Incomes up to $125,000 for single filers (reduced credit $125,000-$145,000)
• MAGI up to $225,000 for joint filers (reduced credit $225,000 – $245,000)
• No credit on homes with a purchase price over $800,000
• Maximum Credit of $8,000 or 10% of Purchase price (smaller of the two)
• Need to file IRS Form 5405
• New instructions as of January 15th, 2010: Revised 1/10 5405 Instructions

Long-time Resident Credit details:

• Must have used the same home as a principal or primary residence for at least five consecutive years of the eight-year period on the date of purchase of a new home as a primary residence.
• Credit up to $6,500
• Modified Adjusted Gross Incomes up to $125,000 for single filers (reduced credit $125,000-$145,000)
• MAGI up to $225,000 for joint filers (reduced credit $225,000 – $245,000)
• Need to file IRS Form 5405
• New instructions as of January 15th, 2010: Revised 1/10 5405 Instructions

Members of the Armed Forces and certain Federal Employees serving outside the U.S.:

• You will have an extra year to qualify for the credit

This information is intended as strategic advice to help give readers an overview of the upcoming 2010 real estate market, and you should always consult a professional tax adviser to discuss your tax situation and if you qualify for this tax credit, and how much you are entitled to receive at your price-point.

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Image by DougFrancis via Flickr

Well, not really in Northern Virginia!

In the grand scheme of things, we should see home buyers having the best of times with this real estate market. The available home buyer tax credits, home prices are the lowest in years, mortgage interest rates are still around 5%, spring is in the air… okay, that’s a stretch.

As I went over NVAR’s end of year statistics there was one glaring fact that directly impacts a buyer’s market.

Lack of Inventory

All the information available on web sites isn’t going to give you the strategies necessary to successfully buy a home in this market. Yep, it’s another reason to have a buyer agent working to make you the strongest, most competitive home buyer possible.

Let’s talk…

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REVISED

As I was driving over to my office today, I heard on WTOP exciting new statistics released by the National Association of Realtors about pending home sales jumping last month. Of course I like that news since I’m in the home-sale-biz, but I feel like there is a considerable amount of “fudge” in those numbers. I say “fudge” because the real estate market has been fueled by the deadline of the first time home buyer’s credit scheduled to expire December 1, 2009.

UPDATE: The President has just signed an extension but you need to be in a contract by May and settle before July 1, 2010.

That’s an $8,000 tax credit for anyone who hasn’t owned a home in the past three years as long as they meet certain criteria.

But last week as Congress tossed around the idea of extending it (they won’t) (they might) (they did), many bloggers decided to beat the story celebrating its continuance. I just Googled the story and read tons of comments where people were relieved that it was extended because they were involved in “short-sales” and the banks had not responded to their offers. The box-score for short-sale success is grim so most of these people will never get the home or the tax credit.

In real estate blogs there were fierce discussions over if it was right or wrong to extend the credit which sometimes blurred the fact that it wasn’t extended (yet) (they did 11/6/2009). Jay Thompson, known as The Phoenix Real Estate Guy, put out a post asking people to stop posting that it had been extended! But Google had already indexed some other guy’s post… and he had over 60 comments from relieved short-sale buyers, who are probably hopping mad right now.

My recent Northern Virginia real estate experience tells me…

So the NAR stats released today and my recent market experience tell me a few things about the economic future. Like the cash-for-clunkers program to sell cars, there is going to be an immediate drop off in home sales in December 2009 (now wait till spring 2010). Almost 80% of the short-sale buyers who have padded the “pending contract” stats will not close and end up continuing to rent. And the NAR will use the dramatic numbers to lobby Congress to reinstate the tax incentive next year.

Like I said, there’s a little “fudge” in the statistics.

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• Home sales contracts rise for 8th straight month (money.cnn.com)
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I wrote an update post on the expanded tax credit for home buyers and you need to take a look at that too if you hope to use it when buying a home this year.

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