Category Archives: IRS

Getting Closed by June 30th — the Hard Deadline

Posted on May 15, 2010 | 3 Comments

Okay, the tax credit boom is over, with April 30th slamming shut the window for prospective purchasers to get into contract.  We saw an enormous boom in business in April as the credit wound down — at our real estate company, we had the biggest month in the 25-year history of the company, transacting three times the number of homes as April 2009.  We expect that companies across the country had the same types of results.

Now, the question becomes what you need to do to get closed by June 30th if you want to claim the credit.  One of the complications of all this is that real estate agents, at least in my area, are simply not used to juggling this many open (i.e., in contract) transactions and trying to get them all closed at once.  Five years ago, they were more practiced at that, but most of them have not had the luxury of having multiple deals at a time during the slowdown in the market.  So let’s make sure these contracts get to closing on time.

Here’s what you need to do:

  1. Communicate your situation. Make sure that everyone on your team — your agent, lender, attorney/escrow agent, engineer, and even the seller knows about your June 30th deadline.  I would send out a blast email to everyone reminding them of everything that needs to be done by that time, and making sure they know you’re on a true hard deadline.
  2. Get Organized. Take out a piece of paper.  Write down everything that has to be done to get you to close.  Indeed, call all your professionals helping you and ask what they need to do, and when they need to do it, to get you to close.  I’m a big believer in “checklists” as a means of ensuring attention to detail.  This is the perfect time to execute a checklist of all the things that you need to do to get closed.  Turn your checklist into a project plan that you’ll send to each of your professionals, and then stay on top of them to make sure they’re complying.
  3. Give yourself wiggle room.  Don’t plan a closing the last two weeks of June.  Try to schedule before that, so that you don’t end up losing your tax credit due to a last minute screwup.  No matter how prepared you are, you’re going to run into problems somewhere along the line.  So give yourself wiggle room

One way to avoid those types of last minute problems is to ask each of your professionals to identify things that could go wrong, so that you’re aware of them.  If there are documents that sometimes are required at the last minute, go get them now.  For example, it’s a great idea to gather all those old pay stubs, contact info for past employers, and everything else that your lender might be asking from you at the last minute.

If anyone else has other suggestions, I’d love to hear them.

→ 3 Comments

Posted in Deadlines, Home Buyer Tax Credit, IRS

Tagged , ,

Last week for the Home Buyer Tax Credit: What does it mean to get into “Contract”

Posted on April 26, 2010 | 2 Comments

With the impending expiration of the Home Buyer Tax Credit, we had a few questions this week about what it means to be “in contract” for purposes of eligibility for the credit. The legislation revised in November requires that eligible home buyer be in contract by April 30, and closed by June 30th, which was actually the first time that Congress put a dual-deadline approach to the credit.

That is, in previous versions of the credit, Congress only set out a closing deadline, which is a much easier demarcation.  Everyone knows what it means to be “closed,” particularly because a “closing” is a fairly formal procedure involving all sorts of legal documents, including bank documents.  As such, it’s very difficult to “fake” a closing date to purposes of claiming a tax credit to which you’re not entitled — you would need not only your settlement service (and attorneys) to be on board, but you’d also need the banks to sign off on loan documents with an inaccurate date.  Good luck with that — another word for changing dates on a federally insured loan document is fraud, and it’s a good way to end up in jail.

But the question now becomes what constitutes a “contract” for purposes of the tax credit, and whether the IRS has any rules about what a “contract” means.  In some parts of the country, buyers make offers on properties through their agents, and sign a “purchase offer” that is akin to a contract, particularly if that offer is then signed by the seller.  That signed document might then be submitted to attorneys, or it might actually be the formal contract of sale.  In other parts of the country (such as downstate New York), agents simply present informal offers, which are then turned into a binding contract of sale prepared by attorneys.

So we expect that in parts of the country that do agent contracts, buyers are going to be able to claim the credit right up to the Friday deadline.  In other parts of the country, such as where we have our brokerage in the Hudson Valley of New York State, buyers might have difficulty getting into contract by Friday if they don’t already have attorneys working on them.  For buyers in those areas, we would suggest that they use a signed purchase offer as the “contract,” since a signed agreement with the sellers, even if it is subject to attorney approval, would probably satisfy the IRS requirement of a contract by April 30th.

→ 2 Comments

Posted in Deadlines, Home Buyer Tax Credit, IRS

Tagged , ,

Confirmation that the Marriage Penalty in the Home Buyer Tax Credit will not apply to married couples with one spouse on title.

Posted on April 21, 2010 | 13 Comments

Today, we received further confirmation and clarification from the IRS that the Marriage Penalty in the Home Buyer Tax Credit will not prevent a married couple from claiming the credit in cases where one spouse is on title, but the other spouse is not. As you might remember, we were concerned that the IRS would literally read the language of the tax credit legislation to require that both spouses trying to claim the long-time homeowner tax credit had to be actual owners (i.e., on the title) for the couple to be eligible for the credit.  We spoke to an IRS representative last week about that issue, and he stated (as we had hoped) that ownership would be imputed from the titled spouse to the un-titled spouse, and that a married couple who had lived in the home that one of the spouses owned for at least five consecutive years out of the last eight (and otherwise qualified for the tax credit) would be eligible.

I got further confirmation on that issue today from a Ms. Burchette, ID # 0246491 of the IRS hotline, who actually indicated that the IRS has released an internal advisory (probably in response to our raising of this issue last week) stating the following: “A married couple are both considered owners of the home even if only one spouse is a titled owner when both have been residing in it.”  So although that advisory has not been published, the IRS is using it internally, confirming the information we put out last week.

But the reason I was on the phone today with the IRS was that we had a new series of related questions come up that in our Questions section, from multiple readers who were concerned about what happens if the couple has lived in the home for a long time together, and one of them is on the title, but they were only recently married:

  • From Matt: Wife and I moved into our current home 5 1/2 years ago (fall of 04)and has been our only principle residence in that time period. When we bought the house in 04 it was in my name only. We married in January of 2008 and refinanced adding my wife’s name to the title in December 2008. We have a sales contract currently in place and are closing in June. I would like to think we meet all the criteria as we have both lived in this house for five years, but would like your opinion.
  • From Katie: My husband bought a house in 2003 before we were married. I had never purchased a home. I lived there for 5 years, 4 of which we were married before we bought a new house together in mid-Nov 2009. Does your recent clarification, mean that we specifically had to have been married for 5 years as well to qualify?
  • From K: My husband and I have lived in the same home for five years. He is the sole owner of the home. Marraige according to the IRS imputes ownership to me. My question is: does the ownership imputed to me run from the date of purchase or the date of marriage? We lived together in the home for the first year while engaged.

In other words, will the IRS impute ownership to a non-title spouse where the spouse has lived in the home for at least five consecutive years out of the last eight that the other spouse owned, but where the couple was not married during that whole time? You could imagine a situation where the IRS will only “impute” ownership during the time that the couple was married, and bar married couples from claiming the credit where only one spouse was on title, and the couple was not BOTH married AND living in that home for the requisite five year period.

Fortunately, the answer seems to be that such couples will in fact be eligible for the Home Buyer Tax Credit. According to Ms. Burchette, the key fact is that they must have both lived in that home for five consecutive years.  If they did that, and one of them owned the home, the IRS will consider the ownership to be imputed to the non-titled spouse so long as they are CURRENTLY married.  They do NOT need to be married for the entire time of their ownership.

Obviously, this is good news.  It’s become fairly common for couples to live together before they get married, and it’s not difficult to imagine situations where couples get married after one spouse has purchased a home that they both lived in.  So we’re glad that the IRS is taking a common-sense approach to this issue.

→ 13 Comments

Posted in Home Buyer Tax Credit, IRS, Long-Time Homeowners, Marriage Penalty, Married Couples

Tagged , , , ,

For every clarification, more confusion: more on marriage and the Home Buyer Tax Credit

Posted on April 19, 2010 | 7 Comments

Okay, we confirmed last week that the IRS had finally clarified that there is no “Marriage Penalty”   for couples where one spouse is the titled owner of the property but the other spouse has lived in the home for the requisite five consecutive years out of eight.  (If you are already confused, you should check out our coverage of the Marriage Penalty in the Home Buyer Tax Credit here.)

But given the new surge of questions on the Questions section of the blog, we didn’t clear enough up.  The new question of the week is this: if the IRS will “impute” ownership of the main home from the titled spouse to the untitled spouse, to allow both spouses to qualify as “long-time homeowners”, what happens if the couple wasn’t actually married during the entire time that they lived in the home?

That is, let’s say that we have a couple Harry and Wendy.  Wendy bought a home for herself in 2000, met Harry in 2001, Harry moved in with Wendy in 2003, and they’ve lived together in that home since 2003. If they got married that year, the IRS has now confirmed that they would be eligible for the tax credit even though Harry would not be on the title and not technically a “home owner,” because his wife’s ownership would be imputed to him.  Conversely, if they were never got married, they’d be eligible for a Home Buyer Tax Credit (she’d be eligible as a long-time homeowner, he’d be eligible as a first-time home buyer). 

But let’s say that after all those years together, they made it official last year, and got married summer 2009.  Uh oh. Are they still eligible?  Literally speaking, they would not be, because she qualifies for one type of credit and he qualifies for another type of credit, which is the classic Home Buyer Tax Credit Marriage Penalty problem.  But now the question becomes whether that “imputed ownership” issue will allow Harry to qualify as a long-time homeowner because (1) he lived in the house for all those years, and (2) he is now married to the person who owned it all that time.

We don’t know the answer to this question, but we’ll try to find out.  On the one hand, the IRS has interpreted all these Home Buyer Tax Credit requirements very literally.  On the other hand, it does not seem like the IRS cares so much about the length of marriage, but simply about whether you’re married right now or not.  So it’s up in the air.  We’ll try to find out.

→ 7 Comments

Posted in First-Time Home Buyers, Home Buyer Tax Credit, IRS, Long-Time Homeowners, Marriage Penalty, Married Couples

Tagged , , , , ,

There is no “Fourth Type” of Marriage Penalty: Confirmation from the IRS that an untitled spouse qualifies as an “owner” for the long-time homeowner credit

Posted on April 13, 2010 | 22 Comments

We finally got confirmation from the IRS about the Fourth Type of marriage penalty that we’ve discussed on this blog.  I just had a conversation with a Mr. Schriber from the IRS, ID #0571682, who has confirmed for me the following: if a married couple has lived in a home for five consecutive years out of the last eight, but only one spouse is on the title to the home, the untitled spouse qualifies as an “owner” for purposes of satisfying the ownership history requirements of the long-time homeowner home buyer tax credit.

This is very good news.  We’ve gotten probably a dozen questions on the Questions section of the blog from people who are in this situation, which makes sense given how likely it is that a couple would get married after one spouse already owns a home, and then live in that home for a long period of time.  Although the legislation literally requires both spouses to be owners of the property, the IRS imputes ownership from one spouse to the other, which is something we speculated about when we initially discussed this issue.

We will be updating the various blog posts about this issue, and trying to find all the questions about this issue so we can let people know the good news.  That said, nothing about this changes the other three types of Marriage Penalties, which prevent a married couple from qualifying for the tax credit if one spouse is ineligible, if the spouses are eligible for different types of credits, or where both spouses are long-time homeowners but for different residences.  To change that, we’re going to need Congress to pass the legislation drafted by Congressman Engel.

My thanks to Mr. Schriber for clarifying this issue for us.

→ 22 Comments

Posted in First-Time Home Buyers, Home Buyer Tax Credit, IRS, Long-Time Homeowners, Marriage Penalty, Married Couples

Tagged , , , , ,

New Video: IRS Tax Issues relating to the Home Buyer Tax Credit

Posted on March 10, 2010 | Leave a comment

As part of our new set of videos for HomeBuyerTaxCredit.com, we put together a video tutorial on the tax return filing issues that have come up with the Home Buyer Tax Credit.  This video covers:

  • What forms you need to file to claim your credit.
  • Documentation you’ll need to prove that you’re entitled to a tax credit.
  • Issues relating to whether you should file for your 2009 or 2010 taxes.

We think this is a nice companion to our IRS page, where you can get your IRS forms and read the IRS advisories and FAQs on the Home Buyer Tax Credit.  And you should also check out some previous blog posts we’ve put out on things you need to know before you file for your tax credit.

Let us know what you think about the video.

→ Leave a comment

Posted in First-Time Home Buyers, Home Buyer Tax Credit, IRS, Long-Time Homeowners, Tax Filing Issues, Video

Tagged , , , , , ,

Update on the Marriage Penalty: We have a Special Report, and we have a Bill!

Posted on March 4, 2010 | 22 Comments

UPDATE 3.09.10: We  have added the video we made about the Marriage Penalty.

UPDATE 4.13.10: The video references a “Fourth Type” of Marriage Penalty questioning whether a married couple would qualify for the Home Buyer Tax Credit in situations where the couple has lived in a home for the requisite five-consecutive-years-out-of-eight period but only one spouse is on the title to the property. The IRS has now confirmed for us that in those situations, ownership by one spouse would be imputed to the other spouse, so those couples would indeed be eligible for the Home Buyer Tax Credit as long-time homeowners (assuming they otherwise qualify).

We know that a lot of you have been following our coverage of the “Marriage Penalty” in the Home Buyer Tax Credit, particularly those of you who have been affected.  We wanted to give you an update on two fronts:

First, we have put together a “Special Report” on the Marriage Penalty, which summarizes and reorganizes everything we’ve written about the Marriage Penalty in the Home Buyer Tax Credit.  We thought it would be helpful as a document to send out to people who might be interested in the issue, particularly for your Congressional Representatives so that they understand the issues presented.

Second, and more importantly, we have a bill — H.R. 4701!  Congressman Eliot L. Engle, the Representative for the 17th District of New York (and, in fact, my Conressman) has drafted a bill to fix the Marriage Penalty and is circulating it among his colleages on the House Ways and Means Committee.  We have no idea if this bill has any chance of passage, but we are hopeful that our Congressional leaders will see that the impact of the Home Buyer Tax Credit will be severely undermined by the Marriage Penalty.

If you want to get involved, here’s what you can do:

  • Join our Facebook Cause, which is now up to 250 members.  We’re not exactly “Farmville,” but it’s something….
  • Send a link to HR 4701 and to our Special Report to your Congressional representatives and tell them that you support fixing the Marriage Penalty.
  • And post the bill and our Special Report to your twitter accounts, facebook, anything you do that can get the word out!

This is the first sign we’ve had that this might actually change.  So let’s act on it.

→ 22 Comments

Posted in Co-Ownership, First-Time Home Buyers, Home Buyer Tax Credit, IRS, Long-Time Homeowners, Marriage Penalty, Married Couples

Tagged , , , , , ,

Smart Decisions in Creating the Home Buyer Tax Credit

Posted on February 3, 2010 | Leave a comment

As you probably can tell, we are big fans of the Home Buyer Tax Credit. We think it’s a great program that will help a lot of people in their home purchases, and stabilize the real estate market through the spring until the economy (hopefully) recovers enough to allow the market to grow on its own.

That said, we’ve spent a lot of time analyzing the actual legislation and the IRS interpretations of the legislation that will govern how the Home Buyer Tax Credit will apply in practice, and we see both some smart things that have been done, and some dumb things.

The “smart decisions” are the ones that Congress properly incentivized home buyers to stimulate the housing economy, or crafted the tax credit to make the credit work better. The “dumb decisions” are the ones we think will undermine the essential Congressional intent to apply the tax credit equitably to spur housing demand.

So here are what we think are three “smart decisions,” and we’ll post the “dumb decisions” later this week.

Smart Decision #1: Not making it retroactive
Congress made a smart decision in not making the November 2009 tax credit retroactive for buyers who closed prior on or prior to the November 6th effective date. Obviously, my heart goes out to those people who unwittingly closed on the verge of a new tax credit that they might have been able to claim, and it certainly seems unfair to people who were eligible under the new guidelines — either as long-time homeowners or under the raised income limitations.

But otherwise Congress would have granted “windfalls” to buyers who closed prior to November 6th. Those people bought their homes with the understanding they wouldn’t be able to claim a credit, but still bought, so they obviously did not need the credit to induce them to buy.

Continue reading →

→ Leave a comment

Posted in First-Time Home Buyers, Home Buyer Tax Credit, IRS, Long-Time Homeowners, Tax Filing Issues

Tagged , , , ,

A Potential Solution to the “Marriage Penalty” in the Home Buyer Tax Credit

Posted on January 29, 2010 | 21 Comments

UPDATE April 13, 2010: This post references a “Fourth Type” of Marriage Penalty questioning whether a married couple would qualify for the Home Buyer Tax Credit in situations where the couple has lived in a home for the requisite five-consecutive-years-out-of-eight period but only one spouse is on the title to the property. The IRS has now confirmed for us that in those situations, ownership by one spouse would be imputed to the other spouse, so those couples would indeed be eligible for the Home Buyer Tax Credit as long-time homeowners (assuming they otherwise qualify).

For the last few weeks, we’ve been promoting a campaign to fix the “Marriage Penalty” in the Home Buyer Tax Credit, which denies married couples a tax credit in situations where unmarried couples would get a credit in the same situation. To remind you, we’ve discovered four specific marriage penalties in the IRS application of the Home Buyer Tax Credit that would render a married couple ineligible, all of them situations where at least one partner in an unmarried couple would be able to claim the credit:

  1. Where one spouse qualifies as either a first-time home buyer or a long-time homeowner, but the other spouse does not qualify for either.
  2. Where one spouse qualifies as a first-time home buyer, but the other spouse qualifies as a long-time homeowner.
  3. Where both spouses qualify as long-time homeowners, but for different principal residences (i.e., they both lived in a home they owned for five consecutive years out of eight, but for different residences).
  4. Where a married couple has lived and owned in a home for five consecutive years out of the last eight, but only one spouse is on the title to the home.

In each of these situations, a married couple is apparently ineligible, according to IRS interpretations of the home buyer tax credit legislation.  We’ve profiled some of those people, those who have written to us.  If you are interested in the issue, or  have a story to tell, you should post it to our comments section and join our Facebook Cause group. Continue reading →

→ 21 Comments

Posted in Co-Ownership, First-Time Home Buyers, Home Buyer Tax Credit, IRS, Long-Time Homeowners, Marriage Penalty, Married Couples

Tagged , , , ,

So How Did The “Marriage Penalty” End Up in the Home Buyer Tax Credit?

Posted on January 27, 2010 | 4 Comments

So why has the “marriage penalty” become an issue in the last month? After all, the home buyer tax credit goes back to 2008, and the IRS has always required that both spouses be eligible in order for the couple to claim the tax credit.

We started to wonder about that this week, when someone asked why we had not raised it before.  The answer is simple: the most egregious applications of the “marriage penalty” come from the long-time homeowner tax credit, which did not exist until early November.  Here’s why.

When the home buyer tax credit only applied to first-time home buyers, and the IRS required that both spouses qualify as first-time home buyers, it seemed unfair but not inconsistent with general IRS requirements involving spouses.  The IRS tends to treat married couples as a joined entity (which makes sense), so it was not unusual for the tax code to require both spouses to be eligible in order for the couple to claim the tax credit. Now, that might still be unfair, especially since unmarried couples can claim a tax credit even where one partner is ineligible, but it did not raise any real complaint prior to November 2009. Continue reading →

→ 4 Comments

Posted in First-Time Home Buyers, Home Buyer Tax Credit, IRS, Long-Time Homeowners, Marriage Penalty, Married Couples

Tagged , , , , , ,