South Orange County Blog from Bob Phillips

GIFTS, WE ALL LIKE TO RECEIVE GIFTS

A longtime friend of mine, Duane Gomer, is a local expert/provider of real estate education.

Below is a recent post of his.

Tax-Saving-Tips-252“There is a lot of misunderstanding about giving someone gifts and the tax consequences. It is not a simple matter and before gifting large sums (not just cash but anything of value) get professional advice. You will be glad you did. Sleeping   at night becomes more difficult during an IRS Tax Audit.

Most people know that you can gift up to a certain amount to someone with no tax problems. Currently, the amount is $14,000 per year and your spouse could also contribute $14,000 per year so in our case with four children we could gift each one $28,000 or a total of $112,000, and we could throw in five grandchildren for another $140,000. That is  $252,000 per year, and you can give the same $14,000 to relatives, parents, friends, etc. with no tax. Wouldn’t take too long to give away  all we have.

You can add even more by making direct tuition payments for students or direct payments of a person’s medical expense. You can even use a 529 plan to give more. Do not do any of these gifting ideas without professional advice to make sure your tracking meets IRS rules.

What if we want to give one child the $252,000? We can do whatever we want, it is our money, but is there any tax to pay that year if this is the first gift that we have ever given. No, No, No. This year the estate tax exemption is $5.43M. You can gift up to that amount in any year without tax to pay, BUT any amount over $14,000 for that year must be reported, and the amount is deducted from the $5.43M for later.

With everyone living to advanced ages, heirs are getting their money late in life and in large amounts. Some money spread to them through the years would be more valuable, and the estate tax impact would not be severe. To give is better than to receive. I am not positive of that, but you should consider this topic before too long. Time is fleeting.” ( End of Duane’s post. Thanks, Duane!)

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9 out of 10 homebuyer assistance programs have funding

Down Payment Resource estimates 7 out of 10 homes for sale could qualify

From Inman News, June 13th 2014

piggy-bank-300x199An analysis of homebuyer assistance programs available through state and local housing finance agencies (HFAs)  and nonprofit groups around the nation found that 90 percent are funded, and that 70 percent of homes for sale could be eligible for one or more programs.

The analysis of 1,654 homebuyer assistance programs, by Down Payment Resource, found that Southern states had the greatest number of programs (598). But the 228 programs offered in the Northeast were the most likely to be funded — 96.5 percent had money to provide help to eligible buyers such as down payment and closing cost assistance, grants, tax credits, and affordable first mortgages with competitive or below-market interest rates.

A state-by-state breakdown shows California had the most programs — 283 — but that only 81.6 percent were  funded. Hawaii had 13 programs, but only six were funded.

Funding for homebuyer assistance programs comes from sources that include mortgage revenue bonds and mortgage-backed securities. During the depths of the housing downturn, the lack of liquidity in bond markets made it difficult or impossible for HFAs to issue bonds, and many scaled back their programs and raised rates. The federal government helped revive the programs by buying securities issued by Fannie Mae and Freddie Mac backed by new mortgage revenue bonds issued by the HFAs.

Down Payment Resource is a tool developed by Atlanta-based Workforce Resource that helps homebuyers and real estate agents providing services to them determine whether they, and homes they are interested in buying, qualify for down payment assistance and other homebuyer assistance programs.

The tool is available through the Down Payment Resource website, downpaymentresource.com, and about two dozen partner organizations, including 19 multiple listings services.

When MLSs integrate the Down Payment Resource tool with listings data, consumers shopping for homes on websites operated by the MLS and its member brokers and agents see a special icon next to for-sale listings that may qualify for assistance programs. Buyers are prompted to answer a few questions to see if they, themselves, are eligible for the available programs.

Three MLSs are launching Down Payment Resource tool this month, and all have a high percentage of listings that could be eligible for one more more assistance programs:

  • Corpus Christi, Texas-based Coastal Bend MLS (83 percent of listings eligible for one or more programs).
  • South Dakota-based Realtor Association of the Sioux Empire (75 percent of listings eligible).
  • Intermountain MLS (Eastern Oregon and Southern Idaho, with 87 percent of listings eligible).

Rob Chrane, president and CEO of Down Payment Resource, said buyers taking advantage of down payment assistance and other programs are able to apply savings to moving expenses, emergencies and retirement. Most assistance programs also require homeownership counseling, which has been shown to decrease the risk of default and foreclosure.

Although many programs are reserved for first-time homebuyers, anyone who has not owned a home in the last three years will typically qualify as a first-time homebuyer.

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Financing Alternatives With 10% Down

Some suggestions from one of my preferred lenders.

Mortgage Insurance VS No Mortgage Insurance 

A borrower wants to purchase a property with 10% down payment and wants to know if they have to pay mortgage insurance. When the loan-to-value is greater than 80% on the first loan, the answer is yes.

10percent

Below you will find 3 examples. 1) an example of financing with mortgage insurance 2) an example utilizing a second loan of 10% to achieve 80% financing, known as an eighty-ten-ten and 3) an example showing how to user a higher interest rate to pay a one-time upfront mortgage insurance premium eliminating the monthly premium. 

1)      10% Down Payment (90-10) With Mortgage Insurance 

In this example the borrower has mortgage insurance which stays on until the loan reaches 80% loan to value. Mortgage insurance is not tax deductible. 

$400,000 Sales Price

$  40,000 Down Payment (10%)

$360,000 Loan Amount (90%) 

$1,842 Principal and Interest Payment at 4.5%, 30 Year Amortization

$   132 Mortgage Insurance

$1,974 Combined Payment

 

2)      10% Down Payment with 2nd (80-10-10) With No Mortgage Insurance 

In this example the borrower finances with a 2nd loan thereby making the 1st loan 80% loan to value eliminating the need for mortgage insurance. 

$400,000 Sales Price

$  40,000 Down Payment (10%)

$  40,000 Second Loan Amount (10%)

$320,000 First Loan Amount (80%) 

$1,640 Principal and Interest payment at 4.5%, 30 Year Amortization

$   175 Interest Only Payment at 5.24%, Home Equity Line of Credit

$1,815 Combined Payment

 

3)      10% Down Payment (90-10) With No Mortgage Insurance 

In this example the borrower accepts a slightly higher interest rate creating a lender credit to pay an upfront mortgage insurance premium eliminating the monthly mortgage insurance. In addition, the interest on the loan is tax deductible. 

$400,000 Sales Price

$  40,000 Down Payment

$360,000 Loan Amount 

$1,905 Principal and Interest Payment at 4.875%, 30 Year Amortization 

While rates and terms are subject to change these examples are meant to show borrowers the options available to them so they make an educated decision of their home financing.

Want to discuss your options, or talk to my lender friend?  Give me a call or text ( 949-887-5305 )  or shoot me an email:  BobPhillipsRE@gmail.com

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Some first time California home buyers seem poised to get $18,000 in tax credits.

Posted in Down payment assistance, home affordability, Real estate, taxes by southorangecounty on March 28, 2010

There is an interesting wrinkle with the new bill just signed by Governor Schwarzenegger, regarding tax credits for California home buyers – state bill AB 183.

Here is some language from that bill: “Requires buyers to close escrow between May 1 and Dec. 31 to qualify.” ( For an up to $10,000. tax credit.)

The interesting part of that is this: The Federal first time homebuyer tax credit of up to $8000. clearly states that “The credit is available for homes purchased after November 6, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, the home purchase qualifies provided it is completed by June 30, 2010.” ( From the Government’s Making Home Affordable website: http://www.federalhousingtaxcredit.com/glance.php )

So, if I read that correctly – and remember, I am NOT a qualified tax preparer, or attorney – that seems to suggest that if you are IN escrow before May 1st, 2010, and close escrow prior to July 1st, 2010, you might qualify to receive BOTH tax credits.

If you happen to be one of those fortunate California home buyers, and you seem to qualify, you should definitely look into this potential windfall.

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There’s 100 Days Left To Claim The Homebuyer Tax Credit

Posted in Down payment assistance, home affordability, Real estate, taxes by southorangecounty on January 24, 2010

100 days remain for the Home Buyer Tax Credit ExpirationNovember 6, 2009, Congress voted to extend and expand the First-Time Home Buyer Tax Credit program.  There’s 100 days left to claim it.

The expiration date of the up-to-$8,000 tax credit has been pushed forward to spring, requiring homebuyers to be under contract for a home no later than April 30, 2010, and to be closed no later than June 30, 2010.

In addition, “move-up” buyers were also added to the program’s eligibility list meaning you don’t have to be a first-time home buyer to be eligible for the tax credit.  If you’ve lived in your home for 5 of the last 8 years, you meet the IRS requirements.

Move-up buyers are capped at a total tax credit of $6,500.

The tax credit’s basic eligibility requirements remain the same:

  • You can’t purchase the home from a parent, spouse, or child
  • You can’t purchase the home from an entity in which they’re a majority owner
  • You can’t acquire the home by gift or inheritance
  • All parties to the purchase must meet eligibility requirements

The new law includes some notable updates, however. 

First, the subject property’s sales price may not exceed $800,000. Homes sold for more than $800,000 are ineligible.  And, also, household income thresholds have been raised to $125,000 for single-filers and $225,500 for joint-filers.

And lastly, don’t forget that the program is a true tax credit — not a deduction.  This means that a tax filer who’s eligible for the full $8,00 credit and whose “normal” tax liability totals $5,000 would receive a $3,000 refund from the U.S. Treasury at tax time.

The complete list of qualifying criteria is posted on the IRS website.  Review it with a tax professional to determine your eligibility.  Then mark your calendar for April 30, 2010.

There’s just 100 days to go.

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You’ve Got 15 More Days To Use The First-Time Home Buyer Tax Credit

Posted in Down payment assistance, home affordability, Real estate, taxes by southorangecounty on October 1, 2009

First-Time Home Buyer Tax Credit expires November 30, 2009The government’s First-Time Home Buyer Tax Credit program expires November 30, 2009 — a scant 60 days from today.


Considering it can take up to 60 days to close on a home, first-time buyers have 2 weeks at most to find a home.


Buyers not under contract by October 15 have little chance of meeting the November 30 deadline and, therefore, little chance of claiming the tax credit.


This is especially true for purchases involving short sales and foreclosures.


Congress passed the First-Time Homebuyer Tax Credit program as part of the 2009 economic stimulus plan.  IRS Form 5405 outlines the program criteria which include the following stipulations:



  • Buyer may not have owned a “main home” in the past 36 months
  • The home may not be purchased from a parent, spouse, or child
  • Adjusted gross income for the household must be below $95,000 for single tax filers and $170,000 for joint tax filers

The credit is capped at $8,000 or 10% of the purchase price, whichever is less.  And don’t forget — the First-Time Home Buyer Tax Credit is a true tax credit. It’s not a deduction.


This means that a tax filer who claims the full $8,000 and whose “normal” tax liability is $5,000 would receive $3,000 cash from the US Treasury when their tax return is processed by the IRS.


If you can’t close by November 30, 2009, though, you can’t claim the credit.


The clock is ticking. If you’re planning to use the First-Time Home Buyer Tax Credit, the time to act is now.

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Using 401(k) Funds For A Downpayment? First, Consider The Tax Implications.

Posted in Down payment assistance, home affordability, mortgage rates, Real estate, Refinances, taxes by southorangecounty on September 15, 2009

401(k) withdrawals have pros and consAs downpayment requirements increase, anecdotally, home buyers are tapping 401(k) plans for extra cash.


Classified as a “hardship withdrawal”, loans against your retirement funds can be cheap and simple.



  1. There’s no credit check or approval process
  2. There’s only a small set of paperwork
  3. Money can be available in as little as a day

But just because you can get access to your retirement money doesn’t mean that you should.  401(k) withdrawals should only be made after careful consideration. 


There are some serious negatives, specifically with respect to taxation. 


If you open a 401(k) loan and don’t repay according to the loan terms, the withdrawal ends up getting taxed as income, plus a 10 percent penalty for people under 59 1/2


That’s a stiff penalty.


But, even if you do repay the loan on time, you’re still getting leaving yourself subject to double-taxation. 



  • Taxation #1 occurs when the loan is repaid using post-tax dollars
  • Taxation #2 occurs upon final withdrawal at retirement

Furthermore, when you borrow against a 401(k), you assume the opportunity costs of having that money out of the market.  Since March, the Dow Jones Industrial Average is up 44 percent.  If your 401(k) was empty, you’d have missed those gains forever.


Taking a loan against a 401(k) isn’t necessarily a bad idea, there just may be better choices. If you’re planning to withdraw from your 401(k) to make a downpayment on a home, talk with a qualified financial professional first.


You can never have too much good information.

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To Use The $8,000 First-Time Home Buyer Tax Credit Program, There’s Now Just 6 Weeks To Find A Home

Posted in Down payment assistance, home affordability, Real estate, taxes by southorangecounty on August 20, 2009

8000 First Time Homebuyer Tax CreditIf you plan to use the First-Time Home Buyer Tax Credit program, time is running out.  The program expires November 30, 2009 and closing on a home can take up to 60 days.


That leaves you 6 weeks from today to find a home and go under contract.


The First-Time Homebuyer Tax Credit program was passed as part of the 2009 economic stimulus plan. It credits up to $8,000 in tax payments to qualified buyers.


The qualification criteria are as follows:



  • Buyer may not have owned a “main home” in the past 36 months
  • The home may not be purchased from a parent, spouse, or child
  • Adjusted gross income for the household must be below $95,000 for single tax filers and $170,000 for joint tax filers

Furthermore, not everyone who’s qualified will get the full $8,000. The credit can’t exceed 10 percent of a home’s purchase price, for example, and households with income approaching program limits get lesser benefits, too.


Meanwhile, an interesting note about the First-Time Home Buyer Tax Credit is that it’s a true a tax credit and not a deduction.  A person claiming the $8,000 credit whose “normal” tax liability is $5,000 would get a $3,000 refund from the IRS on April 15, 2010.


Review the program’s criteria at your leisure, but don’t wait until October to start looking for homes. If you can’t close by November 30, 2009 for any reason whatsoever, you won’t qualify for the tax credit. 


Better to be ahead of the deadline than chasing it.

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The Rules Of Receiving A Cash Gift For A Downpayment On A Home

Posted in Down payment assistance, home affordability, Real estate by southorangecounty on June 10, 2009

Accepting gifts of cash for downpaymentsTighter mortgage guidelines since late-2008 are forcing home buyers to make bigger downpayments.  Anecdotally, the change has led to a surge in buyers taking gifts of cash from family members.


If you’re among those accepting a cash gift from family, it’s important to know that you can’t just deposit the money in your bank account. 


There is a proper way to accept a cash gift and it requires 3 distinct steps:



  1. Complete and sign an acceptable gift letter
  2. Document the gifter’s withdrawal of funds with teller receipts
  3. Document the giftee’s deposit of funds with teller receipts

See, mortgage lenders pay close attention to gifts-for-downpayments.  For one, lenders have to make sure that downpayment cash is “clean” (i.e. not laundered).  And, secondly, they want the gift to really be a gift and not a loan-in-disguise.


This is why lenders will often require that a signed, dated letter accompany the home loan application. 


As an example:



I am the [relationship to recipient] of [name of recipient] and this letter serves as evidence that I am gifting [name of recipient] [amount of gift] to be used for the purchase of the home at [complete address of property].


This is a gift — not a loan — and there is no expectation of repayment.


Signed,
[Signature of gifter]


To further appease lenders, gift recipients should make sure that gift funds are not commingled at the time of deposit.  If the gift is for $12,000, for example, the bank’s deposit slip should indicate that a $12,000 deposit was made — nothing more, nothing less. 


Don’t add a random $50 check to the deposit, in other words.  If you have a separate deposit to make, make it as a subsequent transaction with its own receipt.


It’s also worth noting that gifting funds between family members can create both legal and tax liabilities.  If you’re unsure about how donating or receiving a gift may impact you, call or email your tax advisor. 

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