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The new economic stimulus bill which was recently signed into law has a tremendous benefit for first-time homebuyers – a credit of up to $8,000! This is phenomenal--basically a gift from the federal government if you buy a home this year before December 1.
The credit is 10% of the cost of the home up to a maximum of $8,000 and does not have to be repaid if the buyer lives in the home for at least three years.
This provision is the difference between night and day compared to the $7,500 tax credit that took effect last year for homes purchased after April 9, 2008. The 2008 credit had to be repaid over 15 years, which essentially meant it was an interest free loan. (See my blog of August 30, 2008, “First-Time Homebuyer Tax Credit Explained.”)
So, I repeat: under most circumstances, the credit does not have to be repaid.
The home must be purchased between January 1, 2009 and November 30, 2009. December 1, 2009 is too late! The date ownership legally passes to the buyer is the qualifying date.
Who is a "first-time home buyer?" People who have not had an ownership interest in a primary residence during the last three years are eligible. Ownership in a vacation home would not be considered a primary residence.
Income qualifications for the full credit are $75,000 or less if single or $150,000 for a married couple. Partial credit is available to singles with incomes between $75,000 - $95,000 or married people whose incomes are between $150,000 - $170,000.
This is a refundable credit taken on the buyer’s federal income tax return for 2010. For example, if you will have already paid your full tax liability through withholding, you would still receive a refund of $8,000. Another example: you owed $5,000 in taxes and your withholding was $6,000. Your refund would total of $9,000. Last example: you owed $5,000 in taxes and your withholding was $4,000. Your refund would be $7,000.
Another extraordinary provision of the new law permits the buyer to elect to treat the purchase as if it occurred December 31, 2008 and take the credit on his 2008 income tax return. Even if the return has already been filed, an amended tax return can be filed to obtain the credit. This is especially useful for buyers whose income qualified them for the credit in 2008 but may have too much income in 2009.
Of course, the situation can be turned around. If the buyer would be better served in taking the credit on his 2009 tax return, he can reduce his withholding or estimated tax payments now instead of waiting until tax time in 2010.
All in all, I believe this may be the impetus needed to get people off the fence and into a home. Interest rates are low, inventory is huge, and $8,000 means a lot to most people. And it is so much better than last years $7,500 credit that, as mentioned above, has to be repaid.
The sad part for first-time buyers who purchased last year is that their $7,500 credit still has to be repaid. There is no provision in the law to forgive that and simply avail oneself of the $8,000 credit that does not have to be repaid. I certainly commiserate with them – but who could have possibly foreseen what this year’s law would provide?
IMPORTANT NOTE: This is my interpretation of the basic provisions of the new credit. I have tried to simplify things to give a picture of how this credit works but I urge you to check with your tax professional or accountant for full provisions of the law.
In any case, if you have not owned a home in the past 3 years and are thinking of purchasing a home as your principal residence, now is the time to do so. There are a lot of homes on the market now in NW Arkansas and some very good deals (especially foreclosures and short sales). As the spring progresses a lot of these good buys will be snapped up.
For more information:
http://www.federalhousingtaxcredit.com/2009/faq.php#5
http://money.cnn.com/2009/02/13/real_estate/homebuyer_tax_credit_finalized/index.htm?postversion=2009021712
Showing posts with label income tax. Show all posts
Showing posts with label income tax. Show all posts
Sunday, March 01, 2009
Saturday, August 30, 2008
First Time Homebuyer Tax Credit Explained
There has been so much talk about the recently enacted “Housing and Economic Recovery Act of 2008” and its numerous, complicated provisions that I thought I’d take a few moments to summarize the part you are probably most interested in – the First Time Homebuyer Tax Credit.
You are considered a first-time homebuyer if you have not had any ownership interest in a home in the 3-year period preceding date of purchase.
Closing date of the home must be between April 9, 2008 and June 30, 2009.
The tax credit is 10% of the purchase price up to a maximum credit of $7,500.
A single person with income up to $75,000 qualifies for the full credit. Income between $75,000 and $95,000 qualifies for a prorated portion of the $7,500 credit.
Married couples with income up to $150,000 qualify for the full credit. Income between $150,000 and $170,000 qualifies for a prorated portion of the $7,500 credit.
The credit will be applied against income tax liability. When the tax return is compiled in the usual manner, the credit would be used to lower tax liability dollar for dollar. For example, if total tax liability was $9,000, the credit would reduce the liability to $1,500. This has nothing to do with how much withholding you may have already paid. If your tax liability was $9,000 and you had already paid in $9,000 through withholding, you would receive a check for $7,500.
If total tax liability was $1,000, and you had not paid any withholding, the excess credit of $6,500 would be refunded to the taxpayer.
There are no provisions to get the credit before filing the income tax return in 2009. However, a homebuyer who qualifies for the credit could immediately reduce his withholding at his place of employment (or reduce estimated payments to IRS).
But there is a catch. It’s not “free money.”
The credit has been referred to as an interest-free loan, and with good reason. The credit must actually be repaid at the rate of 6.67% ($502.50) per year for 15 years, beginning with the filing of the 2010 tax return in spring of 2011. No interest will be charged. Let’s say a taxpayer was due a refund of $1,000 on his 2010 return. His refund would be reduced to $497.50 after repaying $502.50).
If the home was sold at a profit before the 15-year payback period ended, the unpaid balance would be deducted from the profit before the proceeds were paid to the seller. If the home was sold at a loss, the balance of the payback would be forgiven.
If the taxpayer dies before paying back all the credit, the unpaid balance would be forgiven.
IMPORTANT NOTE: This is my interpretation of the basic provisions of the Homebuyer Tax Credit. I have tried to simplify things to give a picture of what is now available but I give no guarantees. There are many complicated provisions I haven’t touched upon. As with most new laws, many details will need to be worked out, defined, and applied. You should check with your tax preparer for further provisions of the law.
And whether it’s worth it for you to apply for the credit will depend on your personal financial situation. If you need money to tide you over these tough economic times, it may be worth your while. Just keep in mind that you do have to pay it back in future years.
For more information:
http://www.realtor.org/gapublic.nsf/files/hbtaxcreditqa2008.pdf/$FILE/hbtaxcreditqa2008.pdf
You are considered a first-time homebuyer if you have not had any ownership interest in a home in the 3-year period preceding date of purchase.
Closing date of the home must be between April 9, 2008 and June 30, 2009.
The tax credit is 10% of the purchase price up to a maximum credit of $7,500.
A single person with income up to $75,000 qualifies for the full credit. Income between $75,000 and $95,000 qualifies for a prorated portion of the $7,500 credit.
Married couples with income up to $150,000 qualify for the full credit. Income between $150,000 and $170,000 qualifies for a prorated portion of the $7,500 credit.
The credit will be applied against income tax liability. When the tax return is compiled in the usual manner, the credit would be used to lower tax liability dollar for dollar. For example, if total tax liability was $9,000, the credit would reduce the liability to $1,500. This has nothing to do with how much withholding you may have already paid. If your tax liability was $9,000 and you had already paid in $9,000 through withholding, you would receive a check for $7,500.
If total tax liability was $1,000, and you had not paid any withholding, the excess credit of $6,500 would be refunded to the taxpayer.
There are no provisions to get the credit before filing the income tax return in 2009. However, a homebuyer who qualifies for the credit could immediately reduce his withholding at his place of employment (or reduce estimated payments to IRS).
But there is a catch. It’s not “free money.”
The credit has been referred to as an interest-free loan, and with good reason. The credit must actually be repaid at the rate of 6.67% ($502.50) per year for 15 years, beginning with the filing of the 2010 tax return in spring of 2011. No interest will be charged. Let’s say a taxpayer was due a refund of $1,000 on his 2010 return. His refund would be reduced to $497.50 after repaying $502.50).
If the home was sold at a profit before the 15-year payback period ended, the unpaid balance would be deducted from the profit before the proceeds were paid to the seller. If the home was sold at a loss, the balance of the payback would be forgiven.
If the taxpayer dies before paying back all the credit, the unpaid balance would be forgiven.
IMPORTANT NOTE: This is my interpretation of the basic provisions of the Homebuyer Tax Credit. I have tried to simplify things to give a picture of what is now available but I give no guarantees. There are many complicated provisions I haven’t touched upon. As with most new laws, many details will need to be worked out, defined, and applied. You should check with your tax preparer for further provisions of the law.
And whether it’s worth it for you to apply for the credit will depend on your personal financial situation. If you need money to tide you over these tough economic times, it may be worth your while. Just keep in mind that you do have to pay it back in future years.
For more information:
http://www.realtor.org/gapublic.nsf/files/hbtaxcreditqa2008.pdf/$FILE/hbtaxcreditqa2008.pdf
Monday, February 26, 2007
More Tax Cuts for Arkansans
In addition to the state’s largest tax cut in history (reducing the sales tax on groceries by 50%) more good news arrived this week on a variety of tax cuts. These measures are designed to boost the economy, make Arkansas more attractive to business and retirees who carefully study tax implications before moving to a new state, and help many of our most vulnerable residents.
Increase in Homestead Tax Credit Becomes Law
An increase of $50 in the homestead tax credit was signed into law. Currently, homeowners in Arkansas are eligible for a credit of up to $300 on taxes for their principal residence. The new maximum credit of $350 will become effective with the 2007 assessment year and will appear on property tax bills in 2008.
There are approximately 696,000 homesteads in Arkansas and it is expected that about 538,000 homesteads will we benefit from some or all of the additional $50 tax credit.
The homestead tax credits are financed by a one-half percent sales tax collected by the state, which, in turn, reimburses the counties for the property taxes they did not collect because of the tax credits. According to the state finance department, a $60 million balance was on hand at the end of last year. Governor Beebe has stated, “We were able to determine that we could conservatively and reasonably [increase the credit] and still be sound going into the future.”
Income Tax Cuts for Working Poor Move Closer
It looks like state income tax cuts for low-income people are on the horizon. The House tax committee has endorsed a bill that would exempt approximately 62,000 Arkansans from paying state income tax.
In its current form, the bill would eliminate the following groups from state income tax:
Single people with an annual gross income tax (AGI) of less than $10,200;
Married couples filing jointly with less than two dependents and AGI less than $17,200;
Married couples filing jointly with two or more dependents and AGI less than $20,700;
Head of Household filers with AGI less than $13,700.
Arkansans with income above the federal poverty level but less than 33% above it would receive tax credits to partially offset state income tax. The state finance department estimates 89,000 taxpayers would be eligible for these credits.
This is a step in the right direction. Just imagine a family of four (or more) trying to make ends meet on less than $20,700 a year. If this bill becomes law, it would provide tax relief for people in low-paying jobs and cut the workload at the Department of Revenue at the same time.
A Bill Advances to Equalize Taxes on Military Officers and Enlisted Personnel
Under existing law, enlisted military personnel do not pay state income tax on the first $9,000 of pay. However, officers are taxed on all military pay over $6,000.
The $3,000 difference seems strange to me and apparently to Rep. Sandra Prater, D-Jacksonville, as well. She has introduced a bill that would make the first $9,000 of military pay exempt from state income tax, regardless of rank. The bill passed the House and Senate and has been sent to the Governor.
Reducing Sales Taxes on Utilities Paid by Manufacturers
Bills to reduce the sales tax that manufacturers pay on natural gas and electricity seem to be sailing through the legislature. If signed into law as expected, the sales tax paid on utilities used by manufacturers would decrease from 6% to 4.5% on July 1, 2007. Another scheduled decrease would drop the tax to 4% on July 1, 2008.
State officials say the decreases will reduce state revenue by $20.2 million next fiscal year and $30.5 million the next year.
Perhaps your first reaction to this news might be “What about the taxes I pay on utilities? I’d like to pay less, too.” But the situation bears a closer look.
Arkansas needs to retain the industry it has while at the same time it must recruit more economic development to the state. The 6% sales tax on utilities puts Arkansas at a disadvantage. Most of the neighboring states charge manufacturers lower or even zero sales tax on utilities.
The Arkansas Chamber of Commerce is a strong advocate of this tax cut. If it passes, Arkansas will be in a more favorable position to recruit new employers. Arkansas is still trying to land a huge Toyota plant and there are other possibilities on the horizon.
I say go for it - I’m tired of hearing about the ones that get away, especially now with the recent loss of manufacturing jobs in this area.
For more information on these subjects:
http://www.nwanews.com/adg/National/182567/
http://www.nwaonline.net/articles/2007/02/22/topics/assembly07/022207lrlegpropertytax.txt
http://www.nwanews.com/story.php?paper=adg§ion=News&storyid=182003
http://www.nwanews.com/story.php?paper=adg§ion=National&storyid=182089
Increase in Homestead Tax Credit Becomes Law
An increase of $50 in the homestead tax credit was signed into law. Currently, homeowners in Arkansas are eligible for a credit of up to $300 on taxes for their principal residence. The new maximum credit of $350 will become effective with the 2007 assessment year and will appear on property tax bills in 2008.
There are approximately 696,000 homesteads in Arkansas and it is expected that about 538,000 homesteads will we benefit from some or all of the additional $50 tax credit.
The homestead tax credits are financed by a one-half percent sales tax collected by the state, which, in turn, reimburses the counties for the property taxes they did not collect because of the tax credits. According to the state finance department, a $60 million balance was on hand at the end of last year. Governor Beebe has stated, “We were able to determine that we could conservatively and reasonably [increase the credit] and still be sound going into the future.”
Income Tax Cuts for Working Poor Move Closer
It looks like state income tax cuts for low-income people are on the horizon. The House tax committee has endorsed a bill that would exempt approximately 62,000 Arkansans from paying state income tax.
In its current form, the bill would eliminate the following groups from state income tax:
Single people with an annual gross income tax (AGI) of less than $10,200;
Married couples filing jointly with less than two dependents and AGI less than $17,200;
Married couples filing jointly with two or more dependents and AGI less than $20,700;
Head of Household filers with AGI less than $13,700.
Arkansans with income above the federal poverty level but less than 33% above it would receive tax credits to partially offset state income tax. The state finance department estimates 89,000 taxpayers would be eligible for these credits.
This is a step in the right direction. Just imagine a family of four (or more) trying to make ends meet on less than $20,700 a year. If this bill becomes law, it would provide tax relief for people in low-paying jobs and cut the workload at the Department of Revenue at the same time.
A Bill Advances to Equalize Taxes on Military Officers and Enlisted Personnel
Under existing law, enlisted military personnel do not pay state income tax on the first $9,000 of pay. However, officers are taxed on all military pay over $6,000.
The $3,000 difference seems strange to me and apparently to Rep. Sandra Prater, D-Jacksonville, as well. She has introduced a bill that would make the first $9,000 of military pay exempt from state income tax, regardless of rank. The bill passed the House and Senate and has been sent to the Governor.
Reducing Sales Taxes on Utilities Paid by Manufacturers
Bills to reduce the sales tax that manufacturers pay on natural gas and electricity seem to be sailing through the legislature. If signed into law as expected, the sales tax paid on utilities used by manufacturers would decrease from 6% to 4.5% on July 1, 2007. Another scheduled decrease would drop the tax to 4% on July 1, 2008.
State officials say the decreases will reduce state revenue by $20.2 million next fiscal year and $30.5 million the next year.
Perhaps your first reaction to this news might be “What about the taxes I pay on utilities? I’d like to pay less, too.” But the situation bears a closer look.
Arkansas needs to retain the industry it has while at the same time it must recruit more economic development to the state. The 6% sales tax on utilities puts Arkansas at a disadvantage. Most of the neighboring states charge manufacturers lower or even zero sales tax on utilities.
The Arkansas Chamber of Commerce is a strong advocate of this tax cut. If it passes, Arkansas will be in a more favorable position to recruit new employers. Arkansas is still trying to land a huge Toyota plant and there are other possibilities on the horizon.
I say go for it - I’m tired of hearing about the ones that get away, especially now with the recent loss of manufacturing jobs in this area.
For more information on these subjects:
http://www.nwanews.com/adg/National/182567/
http://www.nwaonline.net/articles/2007/02/22/topics/assembly07/022207lrlegpropertytax.txt
http://www.nwanews.com/story.php?paper=adg§ion=News&storyid=182003
http://www.nwanews.com/story.php?paper=adg§ion=National&storyid=182089
Wednesday, May 03, 2006
Will Your Taxes Be Higher or Lower in Arkansas?
Everyone asks me about taxes here in NW Arkansas compared to where they are moving from. It’s a hard question to answer, since it depends on where the person is moving from, and it depends on the situation of the person moving to NW Arkansas. I recently came across an article on the Internet (see below) that said Arkansas ranked in the middle of most to least tax-friendly states. According to this article, an Arkansan’s tax burden is 10.3% of his/her per capita income, which makes Arkansas #27 on the list.
Like most statistics, this list may or may not mean much to any one individual. It does take into consideration property tax, state sales and luxury taxes, state income taxes, fuel taxes, and more. But it does not consider many other types of taxes, such as city and local sales tax, excise tax, and estate and inheritance taxes. Nor has it considered tax credits you may qualify for or the type of income you have.
Last but not least, by its very nature it cannot consider those things that are most important to you and your family. Are you moving to Arkansas to take on a new position? Are you recently retired and looking for an agreeable climate where you can live without treacherous snow and ice for several months of the year? Do you need to move closer to family so you can help them or they can help you? How important is the cultural scene to you? Perhaps you’re more interested in beautiful scenery and good, clean air to breath than Broadway shows. These are all personal decisions that would hold more weight in a decision about where you want to live. Tax-friendliness of a state is much further down on the list for most people.
Different types of income have different tax consequences. Arkansas does not tax Social Security benefits, VA benefits, Workers’ Compensation, Unemployment Compensation, or Railroad Retirement benefits. Arkansas does not tax the first $9,000 of U.S. Military Enlisted compensation. The first $6,000 of U.S. Military Officer’s compensation is also exempt from state income tax.
The first $6,000 received from an employer-sponsored retirement plan and/or from an IRA distribution is exempt from Arkansas income tax. Arkansas also allows a direct credit of $21 against state income tax for everyone. If you are over 65, the credit is doubled. When the above factors are executed, many retirees find they have zero (0) state income tax to pay in Arkansas.
In every state, property taxes will vary according to the city, county, school district, library district, fire district, etc., where the property is located. The rule of thumb that we (realtors) use in Washington and Benton Counties is that property taxes will be slightly less than 1% of the purchase price, less the $300 Homestead Tax credit. This will vary according to municipality (i.e. their mil rate), and homes outside of city limits will have a mil rate less than those in a town.
According to Kiplinger’s Magazine, Arkansans pay very little property tax, $321 per capita. Only residents of Kentucky at $286, New Mexico at $283 and Alabama at $210 pay less. It’s not surprising that residents of two states that do not levy income taxes on earned income do pay considerably higher property taxes. New Jersey residents pay $1,591 per capita, New Hampshire residents pay $1,555 per capita and Texans pay $852.
Homeowners in Arkansas have who are at least 65 years age qualify to have their appraised evaluation capped. This provision helps senior citizens remain in their homes instead of being taxed out of them as evaluations increase. In addition, a property tax credit of up to $300 per year is available on a person’s principal place of residence, regardless of age.
And still another good point to note about Arkansas: it is heir-friendly. There is no estate tax in Arkansas.
The bottom line is that all political entities need revenue to provide services and that money must come from the people. All in all, I think Arkansas is very tax friendly compared to some other areas of the country.
For more information:
http://money.cnn.com/2006/04/10/pf/taxes/taxfriendly_states_2006/index.htm
http://www.bankrate.com/brm/itax/news/20051107a1.asp?caret=21
http://www.bankrate.com/brm/itax/state/state_tax_home.asp
http://www.bankrate.com/brm/itax/news/20051107b1.asp
http://www.retirementliving.com/RLtaxes.html
http://www.keepmedia.com/pubs/KiplingersRetirementReport/2002/07/01/129139?extID=10032&oliID=213
http://www.keepmedia.com/pubs/KiplingersRetirementReport/2001/03/01/128658?ba=a&bi=0&bp=97
http://www.taxadmin.org/fta/rate/tax_stru.html
http://www.forbes.com/free_forbes/2004/0315/171sidebar.html
Like most statistics, this list may or may not mean much to any one individual. It does take into consideration property tax, state sales and luxury taxes, state income taxes, fuel taxes, and more. But it does not consider many other types of taxes, such as city and local sales tax, excise tax, and estate and inheritance taxes. Nor has it considered tax credits you may qualify for or the type of income you have.
Last but not least, by its very nature it cannot consider those things that are most important to you and your family. Are you moving to Arkansas to take on a new position? Are you recently retired and looking for an agreeable climate where you can live without treacherous snow and ice for several months of the year? Do you need to move closer to family so you can help them or they can help you? How important is the cultural scene to you? Perhaps you’re more interested in beautiful scenery and good, clean air to breath than Broadway shows. These are all personal decisions that would hold more weight in a decision about where you want to live. Tax-friendliness of a state is much further down on the list for most people.
Different types of income have different tax consequences. Arkansas does not tax Social Security benefits, VA benefits, Workers’ Compensation, Unemployment Compensation, or Railroad Retirement benefits. Arkansas does not tax the first $9,000 of U.S. Military Enlisted compensation. The first $6,000 of U.S. Military Officer’s compensation is also exempt from state income tax.
The first $6,000 received from an employer-sponsored retirement plan and/or from an IRA distribution is exempt from Arkansas income tax. Arkansas also allows a direct credit of $21 against state income tax for everyone. If you are over 65, the credit is doubled. When the above factors are executed, many retirees find they have zero (0) state income tax to pay in Arkansas.
In every state, property taxes will vary according to the city, county, school district, library district, fire district, etc., where the property is located. The rule of thumb that we (realtors) use in Washington and Benton Counties is that property taxes will be slightly less than 1% of the purchase price, less the $300 Homestead Tax credit. This will vary according to municipality (i.e. their mil rate), and homes outside of city limits will have a mil rate less than those in a town.
According to Kiplinger’s Magazine, Arkansans pay very little property tax, $321 per capita. Only residents of Kentucky at $286, New Mexico at $283 and Alabama at $210 pay less. It’s not surprising that residents of two states that do not levy income taxes on earned income do pay considerably higher property taxes. New Jersey residents pay $1,591 per capita, New Hampshire residents pay $1,555 per capita and Texans pay $852.
Homeowners in Arkansas have who are at least 65 years age qualify to have their appraised evaluation capped. This provision helps senior citizens remain in their homes instead of being taxed out of them as evaluations increase. In addition, a property tax credit of up to $300 per year is available on a person’s principal place of residence, regardless of age.
And still another good point to note about Arkansas: it is heir-friendly. There is no estate tax in Arkansas.
The bottom line is that all political entities need revenue to provide services and that money must come from the people. All in all, I think Arkansas is very tax friendly compared to some other areas of the country.
For more information:
Washington and Benton County Property Millage Rates:
http://www.co.benton.ar.us/Administration/BCCollect/index.htm (scroll down and click on Current Millage Rates)
http://www.co.washington.ar.us (click on Information and then on Millage rates)
http://money.cnn.com/2006/04/10/pf/taxes/taxfriendly_states_2006/index.htm
http://www.bankrate.com/brm/itax/news/20051107a1.asp?caret=21
http://www.bankrate.com/brm/itax/state/state_tax_home.asp
http://www.bankrate.com/brm/itax/news/20051107b1.asp
http://www.retirementliving.com/RLtaxes.html
http://www.keepmedia.com/pubs/KiplingersRetirementReport/2002/07/01/129139?extID=10032&oliID=213
http://www.keepmedia.com/pubs/KiplingersRetirementReport/2001/03/01/128658?ba=a&bi=0&bp=97
http://www.taxadmin.org/fta/rate/tax_stru.html
http://www.forbes.com/free_forbes/2004/0315/171sidebar.html
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