Who is eligible to claim the $6,500 tax credit?
Qualified move-up or repeat home buyers purchasing any kind of home are eligible to claim this credit.

What is the definition of a move-up or repeat home buyer?
The law defines a tax credit qualified move-up home buyer (long-time resident) as a home owner who has owned and resided in a home for at least five consecutive years of the eight years prior to the purchase date. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. Repeat home buyers do not have to purchase a home that is more expensive than their previous home to qualify for the tax credit.

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 $6,500. Purchases of homes priced above $800,000 are not eligible for the tax credit.

Are there any income limits for claiming the tax credit?
Yes. The income limit for single taxpayers is $125,000; the limit is $225,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) above those limits. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $145,000 (single) or $245,000 (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 the 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 of foreign-earned income. See IRS Form 5405 for more details.

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 $6,500 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 $235,000. The applicable phaseout to qualify for the tax credit is $225,000, and the couple is $10,000 over this amount. Dividing $10,000 by the phaseout range of $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 $6,500 by 0.5. The result is $3,250.

Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $138,000. The buyer’s income exceeds $125,000 by $13,000. Dividing $13,000 by the phaseout range of $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $6,500 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,275.

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? How is this different than the rules established in early 2009?
The previous tax credits applied only to first-time home buyers and were for different amounts of money.

How do I claim the tax credit? Do I need to complete a form or application? Are there documentation requirements?

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 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns).

No other applications 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 repeat home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase. Home buyers must attach a copy of their HUD-1 settlement form (closing statement) to Form 5405 as proof of the completed home purchase.

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, provided the home is purchased for a price less than or equal to $800,000. 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.

It is important to note that you cannot purchase a home from, among other family members, your ancestors (parents, grandparents, etc.), your lineal descendants (children, grandchildren, etc.) or your spouse or your spouse’s family members. Please consult with your tax advisor for more information. Also see IRS Form 5405.

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 $6,500 home buyer tax credit. As a result, the taxpayer would receive a check for $5,500 ($6,500 minus the $1,000 owed).

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 after November 6, 2009 and on or before April 30, 2010 (or by June 30, 2010, provided a binding sales contract was in force by April 30, 2010).

In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date. Be sure to check with a tax advisor in cases where a HUD-1 form is not used at settlement to be sure you have sufficient documentation to attach to IRS Form 5405.

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 an MRB home buyer program.

I am not a U.S. citizen. Can I claim the tax credit?
Perhaps. Anyone who is not a nonresident alien (as defined by the IRS) and who has owned and resided in a principal residence in the United States for at least five consecutive years of the eight years prior to the purchase date can claim the tax credit if they meet the income limits. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. 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 $6,500 in income taxes and who receives an $6,500 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 $6,500 in income taxes. If the taxpayer receives a $6,500 deduction, the taxpayer’s tax liability would be reduced by $975 (15 percent of $6,500), or lowered from $6,500 to $5,525.

Is there a way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 or 2010 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 the 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.

In addition, 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. As a result, some state housing finance agencies have introduced programs that provide short-term second mortgage loans that may be used to fund a downpayment. Prospective home buyers should check with their state housing finance agency to see if such a program is available in their community. To date, 18 state agencies have announced tax credit assistance programs, and more are expected to follow suit. The National Council of State Housing Agencies (NCSHA) has compiled a list of such programs, which can be found here.

HUD allows monetization of the tax credit. What does that mean?
It means that HUD will allow buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 or 2010 income taxes to receive a refund. These funds may be used for certain downpayment and closing cost expenses.

Under the guidelines announced by HUD, non-profits and FHA-approved lenders are allowed to give home buyers short-term loans. The guidelines also allow government agencies, such as state housing finance agencies, to facilitate home sales by providing longer term loans secured by second mortgages.

Housing finance agencies and other government entities may also issue tax credit loans, which home buyers may use to satisfy the FHA 3.5 percent downpayment requirement.

In addition, approved FHA lenders can purchase a home buyer’s anticipated tax credit to pay closing costs and downpayment costs above the 3.5 percent downpayment that is required for FHA-insured homes.

More information about the guidelines is available on the NAHB web site. Read the HUD mortgagee letter (pdf) and an explanation of the FHA Mortgagee Letter on Tax Credit Monetization (pdf). An FAQ about monetization (pdf) is available at the NAHB web site.

If I’m qualified for the tax credit and buy a home in 2009 (or 2010), can I apply the tax credit against my 2008 (or 2009) tax return?
Yes. The law allows taxpayers to choose (elect) to treat qualified home purchases in 2009 (or 2010) as if the purchase occurred on December 31, 2008 (or if in 2010, December 31, 2009). This means that the previous year’s income limit (MAGI) applies and the election accelerates when the credit can be claimed. A benefit of this election is that a home buyer in 2009 or 2010 will know their prior year 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 prior year tax return, but who have already submitted their tax return to the IRS, may file an amended return claiming the tax credit using Form 1040X. You should consult with a tax professional to determine how to arrange this.

For a home purchase in 2009 or 2010, can I choose whether to treat the purchase as occurring in the prior or present year, 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 the present year and a larger credit would be available using the prior year MAGI amounts, then you can choose the year that yields the largest credit amount.

Questions or comments? E-mail me at blogger@matadorsmoneymatter.com

Daily reports of doom and gloom surrounding this housing market seem endless with numerous foreclosures and increased government regulations, making a home purchase seem even more difficult and your dream of home ownership just that, a dream. However, there are ways to improve your chances of purchasing a home utilizing the criteria of lenders to your benefit.

While it is true that financial institutions are imposing stricter lending standards, there are alternatives for first time homebuyers including programs with flexible guidelines requiring little down payment, balanced with job stability and good credit. In addition, there are public servant programs for teachers, police officers and other public employees, which are government-backed programs that are available with as low as 3.5% for a down-payment.

There is more good news. As interest rates are still relatively low, this is a great time for people to get into their first home. Inventories are high and with the continued influx of foreclosures, homeowners are eager to sell, creating a “buyer’s market”, and will often absorb closing costs when negotiating. Wise buyers have a real opportunity of obtaining their dream home at the right price.

 There are still several things to consider before purchasing a new home. First, be familiar with your credit score and credit history prior to pre-qualifying because the better your credit score, the better chance you have of obtaining a loan and at a more desirable rate. Also, start saving for a down-payment and pay off your debt. A 20% down-payment may be difficult to accumulate, but a 3.5% down-payment is within reach. Lastly, you should get pre-qualified so you know how much house you can afford, and you will be taken more seriously by the sellers.

Home ownership is within reach! For those of you looking to purchase, keep searching for your dream home while the housing market is down. These economic times will sooner or later be turning around as history has proven, and you wouldn’t want this opportunity to pass you by! Find out more about MCCU’s mortgages or call our Loan Department today for more information or to get pre-qualified or apply – 818.993.6328.

Questions or comments? E-mail me at blogger@matadorsmoneymatters.com.

Government Tax Credit

If you purchase your first home before December 1, 2009, you may be eligible for the government’s $8,000 tax credit.

Did you know that if you get funded with an FHA mortgage loan, you can use this money to help pay the down payment costs? However, you will have to come up with the first 3.5% of your down payment. You can go here for more information on the Federal tax credit.

Look for Foreclosures

Unfortunately, now is not the time to buy at the market’s lowest. Sellers are not always budging these days. A good bet is to try to find a foreclosure. Usually, the homes are actually in fairly good condition.  How do you find foreclosures? The easiest way is to go online to sites like this. Or, you can go to HUD, or the U.S. Department of Housing and Urban Development, to find a foreclosure in your area.

Or, you can always find a local Realtor who can help you. They usually have the “hot list” for foreclosures in the area you’re looking in. 

Sometimes it makes sense to buy a foreclosure. You’ll get it for less, and then you can use the extra money, or equity if you have it, to make upgrades, if necessary.

Not sure about the neighborhood? Definitely check it out first. Walk or drive through the area and see how many homes are up for sale and the condition of the homes. Also, is it near a busy intersection?  If you’re bold enough, you can even talk to some of the residents there and ask them their opinion of the neighborhood.

What Can You Afford?

First, get pre-qualified by a lender to see what you can spend. Remember to factor in the downpayment, which can be as much as 20% of the home price. 

It’s a buyer’s market. Some sellers may desperately need to sell their home, so be sure to negotiate and take advantage of the fact that they need to sell their home, fast.  And ask about seller financing. You might be able to get a partial down payment or closing costs covered.

There are several first-time homebuyer programs available. Go to HUD to find out about programs you may qualify for.

Educate yourself before you shop, and you’ll come out the winner.

Questions or comments? E-mail me at blogger@matadorsmoneymatters.com.

Here’s how it works:

When you trade in your vehicle that averages less than 18 MPG in city AND highway driving and is not more than 25 years old, you will get a voucher for either $3,500 or $4,500 . The amount of the credit is determined based on the incremental fuel-economy improvement between the old and new vehicles.

According to Chrysler’s vice president of sales ops, the Chrysler incentives will apply to any buyer regardless of the age and fuel economy of the trade-in vehicle.

Want to take advantage of this new program but don’t want to go to a Dealership? Contact Auto Expert to find your car for you, and have it delivered! And don’t forget to get your new car financed at MCCU – we’ve got really low rates and no application fees.

So get rid of your “clunker” and get into a new Chrysler, if that’s the car you’re looking for. You can even use the voucher money for your downpayment on your loan with us.

Questions or Comments? E-mail me at blogger@matadorsmoneymatters.com.

Do you have an auto loan? Are you thinking about buying a new car and financing it? Okay…here’s the fun part. Did you know that if you own a home, you may be eligible for a tax-deductible auto loan, and you may be able to deduct the interest you pay on that car loan?

If you’re a homeowner, your equity can be a source of low-cost funds for buying a new or used car… usually with a tax deduction (check with your tax advisor!). Matadors Community Credit Union’s Tax-Deductible Auto Equity Loan offers these benefits:

• No appraisal or title search fees and no prepayment penalties. The tax-deductible Auto Loan places a courtesy lien on your home as collateral, but without the usual requirements.
• Fast access to funds. Immediately upon loan approval, a standard MCCU auto loan is set up for you, and a courtesy equity lien is added a few days later.
• Low, fixed interest rates. Enjoy the same affordable rates and convenient financing terms offered by regular MCCU auto loans. Finance any new or used car, or refinance higher-rate auto loans from other lenders.
• More buying power. By using the equity in your home as collateral, you may be able to afford a higher-cost vehicle than with conventional auto financing… and you can arrange pre-approval to help you bargain for a better deal!
• Potential tax benefits. The interest payments on home equity loans, including those used for vehicle financing, generally are tax-deductible!

Sound interesting? It should! Contact MCCU today to see if you are eligible for the Auto Equity Loan! Trust me, you’ll be very pleased when you get your interest statement at the end of the year, telling you how much you can deduct! Auto Equity Loan=More money in your pocket, not the Government’s!

Questions or Comments? E-mail me at blogger@matadorsmoneymatters.com.

You are automatically enrolled when you purchase or lease any new Ford vehicle. But, it only becomes effective 30 days after you make the purchase.  If you become involuntarily unemployed (note: this won’t benefit you if you’re fired, only laid off) before January 1, 2010, as long as you submit monthly proof of unemployment, Ford will make your full payment for you, up to $700 per month, for up to 12 months.

Another point to note: you will not be eligible for the program if you were working part-time, or less than 30 hours per week.

The Hyundai Assurance program has been so successful for them that I think this is just the beginning of the other automakers following suit. In this economy, it just makes sense. And, they are all hurting for sales.

Get more information on the Ford Payment Protection Program here.

Buying a new car? Check out MCCU’s low car financing!

Questions or comments? E-mail me at blogger@matadorsmoneymatters.com.

An attendee asked the President a very good question: “Why aren’t there interest rate caps (the maximum amount of interest that credit card lenders can charge) on credit cards? Why are some cards as high as 30% because I missed a payment?”

Obama responded that he agrees and that there should be some federal regulation involved. As I watched, my inner voice was screaming: “Mention credit unions! We already DO have caps!” But the President didn’t hear me, so he didn’t mention it.

I’ll start with non-credit union credit cards. I can’t speak for all, but I do know that previously, on most cards, if you miss or are one or two days late with your payment, your interest rate will increase dramatically. When this happens, the consumer is shocked and appalled. The credit card company’s reponse: It’s in the small print. Which it is, but most of us don’t bother reading the small print on a loan application or disclosure; we’re all guilty of that.

However, there are new regulations that were approved December 18th by the Federal Reserve Board, Office of Thrift Supervision, and the National Credit Union Administration, according to bankrate.com.

Banks hiking fees, restricting credit: The act prohibits card issuers from applying rate increases to existing balances except when holders pay 30 or more days late, when previously disclosed promotional rates expire or when a rate movement is tied to an index, as with variable-rate cards. This ends the practice of “universal default” on existing balances.

This is a good thing, right?

It is, but I have to tell you that credit unions, for years, have always had an interest rate cap of 18%. And again, I can’t speak for all credit unions, but I can tell you that MCCU will not increase your rate because of a late payment. Sure, we’ll charge you a fee, like everyone else does, but chances are that fee is a lot lower than what you’d pay a bank.

The bottom line is this – when you are applying for a new credit card, or are looking to transfer an existing balance to a new card – always, always read the small print and read the entire disclosure. You want to be as educated as possible as to the terms of the card and what exactly would happen if you were late making a payment.

Find out more about MCCU’s Credit Card program.

Questions or comments? E-mail me at blogger@matadorsmoneymatters.com.

With Assurance Plus, if you lose your job or are disabled and are having a hard time making your car payments, Hyundai will make your payments for you for three months. After the three-month period, if you are still not back on your feet financially, you can return your car to them through the original Assurance Program.

The original Assurance Program has done very well for Hyundai. In the last quarter, they were one of three automakers who posted an increase in sales.

Let’s face it, these are still hard times and the light at the end of the tunnel is very, very dim. Layoffs are continuing and people are worried about losing their job, if they haven’t already. And if they need a new car, making timely monthly payments is a worry. But not if you buy a Hyundai.

I truly hope that other automakers will jump on this bandwagon and follow suit. The proof is in the pudding – it works, and it’s a win-win situation for Hyundai and consumers.

Find out more about the Hyundai Assurance Plus Program.

Questions or Comments? E-mail me at blogger@matadorsmoneymatters.com.

As part of the stimulus package, taxpayers will be able to deduct the both local and state sales tax paid on new car purchases up to $49,500. The tax break will cover the purchase of any new car, domestic or foreign, through the end of 2009. Additionally, the deduction is “above the line,” which means that it reduces the amount of a filer’s taxable income. Eligible taxpayers must have an annual income below $125,000 for individuals or below $250,000 for families.

So if you’re in the market for a new car, buy it now and take advantage of low prices, the tax deduction, and low financing at the credit union! And if you need help finding your car, don’t want to hassle with Dealers, and want to possibly save money on your purchase, use Auto Expert, our auto buying service. Happy shopping!

Questions or comments? E-mail me at blogger@matadorsmoneymatters.com.

Once again, MCCU was featured on KCAL9′s Money 101 segment! Our low car loan rates were featured. Here’s why you should get your next car loan from us:

• Low rates = affordable monthly payments
• 60 Day no payment option (interest will accrue)
• No application fees
• Terms up to 84 months
• Car buying service available
• Apply online here!

Get more information on our awesome car loans today!

Questions or Comments? E-mail me at blogger@matadorsmoneymatters.com.