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Frequently Asked Questions About the Home Buyer Tax Credit

The American Recovery and Reinvestment Act of 2009 authorizes a tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009.

The following questions and answers provide basic information about the tax credit. If you have more specific questions, we strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.

  1. Who is eligible to claim the tax credit?
  2. What is the definition of a first-time home buyer?
  3. How is the amount of the tax credit determined?
  4. Are there any income limits for claiming the tax credit?
  5. What is "modified adjusted gross income"?
  6. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
  7. Can you give me an example of how the partial tax credit is determined?
  8. How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008?
  9. How do I claim the tax credit? Do I need to complete a form or application?
  10. What types of homes will qualify for the tax credit?
  11. I read that the tax credit is "refundable." What does that mean?
  12. I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns. How can I claim the new $8,000 tax credit instead?
  13. Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
  14. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
  15. I live in the District of Columbia. Can I claim both the Washington, D.C. first-time home buyer credit and this new credit?
  16. I am not a U.S. citizen. Can I claim the tax credit?
  17. Is a tax credit the same as a tax deduction?
  18. I bought a home in 2008. Do I qualify for this credit?
  19. Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 tax return?
  20. If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
  21. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?

Who is eligible to claim the tax credit?
First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.

What is the definition of a first-time home buyer?
The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.

For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

How is the amount of the tax credit determined?
The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.

Are there any income limits for claiming the tax credit?
The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.

What is "modified adjusted gross income"?
Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.

To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.

If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
Possibly. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.

Can you give me an example of how the partial tax credit is determined?
Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.

Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.

Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.

How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008?
The most significant difference is that this tax credit does not have to be repaid. Because it had to be repaid, the previous "credit" was essentially an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount. Certain exceptions apply.

How do I claim the tax credit? Do I need to complete a form or application?
Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on Line 69 of their 1040 income tax return. No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests.

What types of homes will qualify for the tax credit?
Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.

I read that the tax credit is "refundable." What does that mean?
The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).

I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns. How can I claim the new $8,000 tax credit instead?
Home buyers in this situation may file an amended 2008 tax return with a 1040X form. You should consult with a tax advisor to ensure you file this return properly.

Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after January 1, 2009 and before December 1, 2009.

In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.

Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
Yes. The tax credit can be combined with the MRB home buyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.

I live in the District of Columbia. Can I claim both the Washington, D.C. first-time home buyer credit and this new credit?
No. You can claim only one.

I am not a U.S. citizen. Can I claim the tax credit?
Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of "nonresident alien" in IRS Publication 519.

Is a tax credit the same as a tax deduction?
No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.

A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.

I bought a home in 2008. Do I qualify for this credit?
No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit.

Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 tax return?
Yes. 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.

Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

Further, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. Some state housing finance agencies, such as the Missouri Housing Development Commission, have introduced programs that provide short-term credit acceleration loans that may be used to fund a downpayment. Prospective home buyers should inquire with their state housing finance agency to determine the availability of such a program in their community.

If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.

Taxpayers buying a home who wish to claim it on their 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult with a tax professional to determine how to arrange this.

For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?
Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.


9 tips for homebuyers and sellers in 2009
By Steve McLinden • Bankrate.com

In residential real estate, 2009 arrives much the same way that 2008 did: via a rocky road with deepening potholes. While more homebuyers are swooping in and picking up great deals, and sales are slowly increasing in many markets, the ongoing excess inventory of foreclosed homes continues to depress the market.

While potential buyers are getting very low mortgage rates, they also are facing much tighter credit standards and demands for significantly larger down payments. And we haven't even started absorbing the financial fallout from adjustable-rate mortgages, slated to ratchet up in 2009.

No one can really say quite when this downward spiral will cease. If former Fed Chairman Alan Greenspan and current Chairman Ben Bernanke were surprised by the depth of this housing crisis, who among us can accurately make the call?

There is growing sentiment out there that this darkness directly precedes a new dawn. A late-2008 consensus survey by PricewaterhouseCoopers and the Urban Land Institute, based on input from more than 600 industry experts, projects the U.S. residential market should start rebounding appreciably in 2010.

But what about now? Well, this new economy has added some wrinkles to home buying and home selling strategies, while reintroducing some of those old-school favorites like sound fundamental fiscal practices. So here are nine tips for homebuyers and nine for sellers to help them survive and hopefully thrive in the transition year of 2009.

9 tips for homebuyers in 2009
1. Cash is the new king

If you can spare the cash, it has a heck of a lot more buying clout now. In the past, we've tried to persuade people to seek out more liquid investments for their cash on hand and grab an easy-to-get low-interest mortgage. Now, with the equity markets depressed at the same time that mortgage loans are hard to find, the tables have turned. Those wielding ready cash in a recession are always ahead of the game.

2. Negotiate extras ... and more extras
This is a no-brainer in the current market. But while sellers continue to offer throw-ins such as built-in appliances, flat-screen TVs and even cars, the best throw-ins are always the ones that take monetary form. Think paid closing costs, a year's worth of property taxes, repair credits and paid homeowners association dues, to name only a few.

3. Start a down payment fund
The goal should be to amass 20 percent. Set monthly saving goals. Shore up the family budget. Work an extra job if you must. The pain will precede a gain: lower house payments and higher equity in the future.

4. Determine your own home buying budget
Do this before you start talking with lenders. They will tell you what you qualify for, but only you can determine what you can really afford. Be realistic and work in a buffer for contingencies and negative life events. And instead of facing possible piecemeal rejection locally lender by lender, shop for a
mortgage online and see what several competing lenders have to offer. But don't expect appreciably less-stringent terms online.

5. Clean up your credit score
You've heard this one before. But now it's more important than ever if you hope to get home financing in '09. Correct reporting-agency errors that may be dragging down your score. Pay your bills on time. Pay down active credit cards, but don't close out paid-off accounts.

6. Research equals savings
Agents will almost always tell you that the time to buy is now. But do your own research. Go online and scour newspapers and other local sources looking for housing inventory backlogs, the average for-sale time that homes are on the market and average selling prices. Also, be wary of the number of area foreclosures and major-employer layoffs. You'll get a better sense of how much negotiating clout you'll really have and which way the market is moving. Information is power -- in your case, purchasing power.

7. Don't overlook neighborhood issues
If and when you do qualify for a mortgage, don't overlook these important issues in your exuberance: quality of schools, traffic noise, upcoming zoning issues, neighborhood stability, home turnover, crime levels and the presence of any sex offenders. This is where a strong, veteran agent can assist.

8. Watch for foreclosed-property inventory to loosen
Banks soon will be under greater pressure to cut their losses on property they own through foreclosure and to increase revenues. With a smaller percentage of distressed homes selling at auction, banks are loaded up with more of these nonperforming assets.

In major markets, more agents are specializing in prying loose so-called REOs -- real estate owned by banks. Again, cash on hand talks loudest.

9. Look for other looming opportunities
Can't get a loan? The financial markets should begin to untangle at least a little bit in 2009. The newly Fed-fortified banks will, or at least should, start moving that money. They are banks, after all. But don't expect a return to zero down payments.

9 tips for home sellers in 2009
1. Price correctly from the get-go
Unless you live in one of a handful of relatively stable U.S. markets, don't start out too high-priced just to test the waters. Your backup plan of adjusting on the fly may prove futile. Keep that window of opportunity open from the first time the for-sale sign appears on your lawn. The first 30 days a home is on the market are when it gets the most attention from potential buyers and their agents.

2. Fix earlier pricing mistakes
If you've already made the pricing mistake of not following the tip above, consider taking the home off the market and repositioning it for later entry. If you simply persist with that original, now-discounted offering and keep dropping the price as the months go by, lowball buyers and their brokers will be waiting in the wings to see how low you'll go next month. If you do take the home off the market, make some relatively simple cosmetic improvements such as new paint and landscaping. Then list it again, but at the right price this time.

3. Looks do matter
Don't underestimate the importance of curb appeal. Not only is there an acute price war going on out there, there's also a beauty contest being staged. You may be strategically located in a quiet cul-de-sac near great schools, great health care facilities and fabulous shopping, and you may have easy highway access for that morning commute, but unless your exterior is well coiffed and in sparkling condition, other offerings will outshine it. If your home's outside doesn't pass the drive-by test, the interior won't, because it will not be viewed by serious buyers, who are already off to view the next home on their list.

4. Don't overdo it.
By contrast, if you go too far in improving your place, you likely will not be able to recoup your remodeling investment. Don't over-invest to the point where your home greatly exceeds competing properties in your price range and neighborhood. And keep color schemes neutral for best sale potential.

5. Don't be an ambiguous seller.
Either you are going to sell or you aren't. Why waste everyone's time, including yours? If you manage to fetch a decent offer with a test listing in this market, commit to sell. You may be able to buy a better replacement house at a disproportionately lower price with so many steals still out there.

6. Be an energy miser
A low- or midgrade energy retrofit will make your home greener and more marketable, and it won't bankrupt you. The selling point of seeing thousands of dollars in energy savings down the road is a timely one. Add a programmable thermostat, re-insulate the attic and water heater and caulk around doors, windows, eaves, edges and joints to better seal them. Consider having a professional energy audit performed. They're relatively cheap. At least one Web site,
Home Energy Saver, offers a do-it-yourself audit tool.

7. Know all of your options
If you are among the thousands of homeowners who have lost significant value in their homes or are upside down on your note and can't refinance, know what your next step may be.

If you can't get your mortgage agreement modified, negotiate an alternative payment arrangement or find a buyer to assume your payments, you should be aware of the more drastic alternatives open to you. For more information, read Bankrate articles on short sales, intentional foreclosures, preforeclosure sales and deeds in lieu of foreclosure -- all extreme options for getting rid of your home and mortgage payment.

8. Become a landlord
This approach is best for people who aren't too far behind on their payments. Yes, those newly reset adjustable-rate monthly payments are often higher than the rent you can fetch, but the rental market has made a comeback with so many foreclosure victims out on the streets. Give first priority to possible lease-option or lease-purchase tenants. In a lease option, a renter pays more than the established monthly rent for the right -- but not the obligation -- to buy the property later. A lease-purchase pact is similar, but it obligates the renter to buy. If you are not able to carefully screen renters and doggedly look after your property in any of these scenarios, don't become a landlord.

9. Hold fast: Don't sell in a panic
Unless you owe more than what your home is worth or face a job change, relocation, divorce, health crisis or other major negative life event, then wait until next year or the year after to sell. Current conditions are not permanent.

-- Posted: Dec. 29, 2008

Basics of Distressed Sale, Short Sale, Foreclosure and REO's 
Distressed Sale:
The owners know that if they don't sell their home soon, or at top dollars, what they will end up with after close of escrow (after their home is sold) and the cost of selling, may leave them with little or nothing.
For example, suppose they bought a house for $600,000 with two loans, one for 80% or $480,000 and one for 10% or $60,000, with the remaining $60,000 coming from their savings as a down payment. Now they think the home is still worth $600,000 but their cost to sell (commissions, title insurance, etc . . .) is 7% or $42,000. If their home in fact sells for $600,000, substracting the $42,000 it cost to sell, leaves them with $558,000, from which, once they pay the lender $540,000 for their two loans, they walk away with $18,000 cash.

But what if the market is declining at 2% a month (or $12,000) and they price at $600,000 and don't sell for 30 days, so they lower the price to $588,000. But since the market is declining they are still priced above market value, so another 30 days goes by, they still don't sell, so they lower the price to $576,000. This is called chasing the falling market. If they had priced at $588,000 in the beginning they would have been more likely to sell, and now they wish they had priced there or even lower, because the days of getting those values are gone. In a falling market like this, the rule of thumb is price 5% below the most recent comparable sale. So in this scenario they would have priced at $570,000 and very likely sold in 30 days. Unfortunately, too often what happens is seller says "we must sell our home for no less than $X,xxx otherwise we will not get enough money back out . . . but what they need has ABSOLUTELY nothing to do with what the market will bear . . . so they stick their head in the sand and hold fast to "what they need," meanwhile the market falls further and further away. That has happened to MANY sellers in the past couple years. Shame on their Realtors for not having the courage to give them the "bad news" right upfront. If their Realtor did, and the sellers didn't listen . . . it's time to face the music.


Short Sale:

The owners owe more than the market value of their property. After close of escrow, they will have to bring money to pay the lender and/or the Realtor and/or the title and & escrow company.

For example, let's go back to the scenario above. We dropped to $576,000 but if the home sold for that amount with a 7% cost of sale or $40,320 the sellers would get $576,000-$40,320=$535,680 . . . Wait a minute the outstanding loans are $540,000 the sellers are $4,320 short! Therefore there would typically only be one choice, bring that cash from savings to the closing to pay the lender. The lender forgives their debt and their credit remains spotless. But what if the sellers don't have $4,320? Or what if instead of being that amount short, they are $40,000 short and don't have that amount of savings? There are only choices, default on your debt and let your home go into forclosure, the worst hit the person's credit rating can possibly have . . . or convince the bank that in fact you don't have the savings, that yours' is a true hardship case, and that it's better for the lender to lose $4,000 or $40,000 than completely walk away from your obligation to pay the lender. The lender is certainly NOT going to forgive a portion of your debt if you have $100,000 in a 401K or other investments.


This only happens when the sellers/borrowers stop making payment on their mortgage for 90 days. At that point most lenders will send a "Notice of Default," also at that point the borrower's credit has dropped into the 500's making it all but impossible to refinance or get a new home loan through conventional sources. In most cases, 90 more days after Notice of Default (total 180 days) the lender can send a "Notice of Trustee Sale" which announces the date on which they will be selling the home at auction, typically within 2 weeks of the notice. In most counties those bidding at the auction must have cashiers checks for their exact winning bid amount to purchase the property, they bid without being able to inspect the inside of the property, and they are at risk for any other tax, contractor, or other liens against the property . . . if there was ever a case of "buyer beware" this is it. The original "owners" are borrowers in default who will most often be evicted by the party buying the home at auction. But often homes don't sell at these auctions because those biddings are not willing to pay what lender wants. That brings us to our final scenario . . .


REO's (Bank, Real Estate Owned):
Let's go back to the Distressed Sale scenario above. Let's say the sellers keep chasing the market down and let's say that after 3 months they realize they are going to have to bring $40,000 to closing if they sell their home. They don't have that much money, so they apply to the lender for a short sale based upon hardship, they are granted it, but because they had an adjustable rate mortgage they can no longer afford the payments, after a couple months of trying to pay while trying to sell their home, they give up on making payments . . . unfortunately the house never sells, so 180 days later they receive a Notice of Trustee Sale, 2 weeks later it goes to auction, no one buys it . . . it is now the bank's property, the original owners are evicted . . . and the bank hires a Realtor to sell the home, typically as is. Most often the banks look at every penny at this point as just increasing a loss, so they turn off the power, the water, etc . . . the lawn turns brown, toilets start looking funky, etc . . . The bank appoints a clerical worker to oversee one more in the 1000's of properties in their inventory of homes they now have cumulatively lost millions on, and now own. By the way, the money the bank lent for the mortgage to the original home buyers/owners is a debt they (the lender) must repay at some point to the depositors who trusted them to hold their cash and eventually return it in full plus interest.

(source: Carson)


8 Things Should Be Considered Before Buying A Bank-Owned Home.

Once a property is fully foreclosed by a bank or lender and listed for sale, it is commonly referred to as a REO (Real Estate Owned) listing. Most bank-owned properties are listed with local real estate agents. Good buys are available. They require research, preparation, patience and persistence. Buying a bank-owned home isn't easy and it's not without risk. The list below should be useful if you decide to take advantage of today's unique REO buying opportunities:

Choose a real estate agent who is familiar with REO practices to help you navigate the process, confirm property values and negociate terms.
Get pre-approved by a qualified lender. Many banks won't even consider your offer unless you have written lender approval or proof of funds.
Buyer beware: Most bank-owned homes are exempt from typical seller disclosures and are sold "as is." Lenders will allow you to get all the inspections you want (at your expense) although often refusing to pay for repairs or upgrades. It never hurts to ask and an experienced agent can save you a bundle by recommending reputable inspectors and negotiating terms with the bank. If substantial work needs to be done, have a licensed contractor take a look before putting an offer or have your agent negociate an inspection contingency.
Making an offer: Your agent should find out if there are any existing inspection reports on file, what work if any the bank will agree to and if there is a special purchase agreement form required by the bank. (Many have their own forms and will not respond to offers written on traditional forms.)
Pricing your offer: Most REO properties are priced to sell and will likely sell within 15% of the list price. Better properties may command a bidding war, selling for more than asking price. If you lowball your offer, don't be surprised if the bank doesn't respond at all
Once you know what you know and can afford, be prepared to write several offers before you get one accepted. Asset management companies, a third party hired by lenders to liquidate foreclosed properties, can be overwhelmed and routinely take longer than expected to respond. Unlike traditional sellers, lenders do not review files or consider offers on weekends and holidays.
Financing: For qualified buyers and investors, exploring financing options with the REO lender may produce better than market interest rate, reduced down payment amount or other financially favorable outcome. (A prequalification letter from an outside lender is still required to get the bargaining table)
The lender is in the driver's seat: REO sales are void of emotion for the seller. They do not have to make sense to anyone but the bank. They make their own rules. Together with your agent, if you understand this basic principle, you might just be a good candidate to buy a bank-owned home.

Should You Retire at 55? 62?70?

Someday, you'll leave your full time job either to explore new part-time opportunities or stop working completely. When? That's not an easy question to answer. Consider these three milestones before you decide:

Age 55: If you have a traditional pension plan at work, you generally may receive a reduced pension benefit starting as early as age 55 once you separate from service with that employer. Also if you leave your job and are at least 55, you may take withdrawals from qualified retirement plans, such as 401(k) plans, without incurring the 10 percent early withdrawal penalty. (That penalty normally applies before age 591/2, but this is one of the exceptions to that rule.) The distributions are taxable as ordinary income. Note: Medicare doesn't start until age 65 so you may need to purchase health coverage on your own in the meantime.
Age 62: You may begin to collect Social Security retirement benefits at this age. However, your monthly benefit will be permanently reduced if you start collecting before your full retirement age (between 65 and 67). The reduction ranges from 20 percent to 30 percent, depending on when you were born and when you start collecting.
Age 70: You might want to choose a later retirement date if you are concerned about outliving your assets. If you continue to work and delay collecting Social Security benefits until after your full retirement age, you may increase the monthly benefit amount you ultimately receive. Until you reach age 70, you may earn credits toward a larger benefit for each month you postpone retirement.

Work and Get Social Security
Even if you aren't ready to retire, you might be able to get a check from Social Security. And it helps to act in January.
Social Security's "earning test" dissuades some people who have reached 62 from filing for benefits. If you claim benefits before full retirement age - and if you're still working - Social Security deducts $1 in benefits for each $2 you earn above an annual limit. In 2008, the limit is $13,560. (The duductions are reduced in the year you reach full retirement age and end once you hit that mark.)

That said, it's still possible to get benefits, even though you're working. What's more - and what many people don't realize - is that, once you reach full retirement age, Social Security recalculates (read: increases) your benefit to give you credit for deductions tied to the earnings test.

Steve Potter, a retired public affairs specialist for Social Security, shows how this can work - and why January is important:
Let's say you turn 63 next month and expect to earn $33,560 in 2008. Also, Social Security tells you that, based on your earnings, your monthly benefits will total $1,000 ($12,000/year) at 63 - or $1,250 at 66 (your full retirement age). You decide to file at 63. Social Security first substracts $13,560 (the earning limit in 2008) from your expected income: $33,560 minus $13,560 equals $20,000. That figure is divided by two (again, $1 in benefits is deducted for each $2 above the limit.) The result - $10,000 - is the amount in 2008 that Social Security will withhold from your benefits.

The good news: Even though $10,000 is deducted from the $12,000 you were scheduled to receive in 2008, you still end up with $2,000 in your pocket - money you wouldn't have seen if you hadn't filed for Social Security. (Ideally, continuing the math at age 64 and 65 would yield $6,000 in all.) Anh when you reach full retirement age (66), Social Security will increase your monthly benefits (to $1,208, in this case, from $1,000) to help compensate for the deductions.

The catch: Uncle Sam gets paid first. In our example, Social Security would withhold benefits from January through October ($1,000 times 10 equals $10,000) and send you $1,000 in both November and December. But . . if you wait until, say, April to claim your benefits - instead of January - that leaves you with only nine potential Social Security checks for the year (April through December) totaling $9,000. Because $10,000 needs to be withheld, you end up with nothing (zero dinero)
(source: Glenn Ruffenach)

Can The Taxpayer Deduct Home-Office Expenses?
<1> Is the office used exclusively for business?(*)
NO  - No home-office deduction allowed
YES - Go to <2>
Is the office used regularly for business?
NO  - No home-office deduction allowed
YES - Go to <3>
<3> Is the taxpayer an employee?
NO  - Go to <4>
YES - Go to <5>
Does the taxpayer meet clients in the office in the normal course of business?
NO  - Go to <6>
YES - Home-office deduction allowed

<5> Is the office for the employer's convenience?
NO  - No home-office deduction allowed
YES - Go to <4>
Is the office in a separate structure?
NO  - Go to <7>
YES - Home-office deduction allowed

<7> Is the office the principal place of business?(**)
NO  - No home-office deduction allowed
YES - Home-office deduction allowed

Note: Home office refers to any business use of the home.
(*)  Exceptions apply for storage of inventory and day-care providers
(**) Each trade or business in which the taxpayer is engaged may have a principal place of business

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