Property Investment Basics, Part 4.

Tax Impacts. Real estate as an investment class benefits from certain tax characteristics, primarily from the fact that real estate can be depreciated. Depreciation provides a tax shield for income at ordinary income rates, and then when the real estate is sold, the taxes due are often recovered at lower capital gains. Any reasonable analysis of an investment in real estate needs to take the tax impacts into account and so the returns should be done on an “after-tax” basis. So you should involve your CPA before you purchase to get the big picture.

Home Buying Mortgages + Lending

Gov’t Incentives will Expire Soon, so buy Now!

The government wants you to buy real estate. As a result, two programs are available to significantly reduce your acquisition costs. So in addition to the low prices, there 2 additional reasons to buy in the Phoenix area right now! But these opportunities expire soon, so you shouldn’t put off any planned investment in Phoenix area real estate.

The programs’ qualification requirements, dates and deadlines are different, so do your research and get the necessary help in order to be sure you qualify.

First is Fannie Mae’s new closing cost assistance program on purchases of their foreclosed upon houses. The reason for the program is said to be to stabilize communities and assist home buyers. I think the real reason is that they have too much foreclosed upon inventory. So this is like a sale, and we all love sales, right?

What Fannie Mae is offering is a 3.5% incentive for buyers who purchase and close on a Fannie Mae-owned home between January 28 and April 30, 2010. Buyers purchasing properties that close within this period may receive up to 3.5% of the final sales price for closing costs, the purchase of new Whirlpool® appliances (by Fannie Mae on the buyers behalf), or a mix of thereof at the buyer’s discretion, up to the maximum 3.5%.

To be eligible for this incentive the closing must occur before May 1, 2010, and Buyers must be owner-occupants (investors are excluded).

And don’t forget the additional “incentive” supplied by the tax credit. There is no requirement that existing homeowners sell their existing home to be eligible tax credit, so it applies to second or investment homes. For existing homeowners, the amount is $6,500 (“new” buyers get $8,000); but the homeowner must have lived in the home for 5 consecutive years out of the last 8. To qualify for the tax credit, the buyer must have signed a binding contract by April 30, 2010 and close on the home by June 30, 2010.

You should get professional tax help if you plan to take advantage of the tax credit, because there are various eligibility requirements. For example, it is subject to income limits, $125,000 for single buyers and $225,000 for couples. In addition, the sale price of the home being purchased can’t exceed $800,000. Both of those limits need further investigation due to the possibility of different definitions of them, such as whether the limits are net or gross. You can read the eligibility instructions given by the IRS for the tax refund/credit form (number 5405) at

So here are two more reasons to do something now, because both programs expire either in May or June of 2010. And we can help you to get the property you want, so call 480 675-0112 or visit us at

– N. Mark Kramoltz © 2015


The New Tax Credit – Not Limited to First Time Buyers

The $8,000 tax credit scheduled to expire November 30, 2009 has been extended. Now a purchase agreement can be entered into up to May 1, 2010, as long as the transaction closes no later than July 1, 2010. It continues to cover first time home buyers, but has also been extended to include certain existing home owners. So now an expanded group of home buyers are eligible for this fanatically popular tax credit.

The tax credit remains at $8,000 for home buyers that haven’t owned a primary residence in the last three years. But now home owners that have lived in their current primary residence for at least five consecutive years out of the past eight years qualify for a $6,500 tax credit. Under the old rules, existing home owners did not qualify.

Here is an example of how the credit works. If you own a home that you have lived in for the past five years, if you decide to buy a new primary residence today, you would qualify for the $6,500 tax credit, based on the fact that you have lived in the same residence as your primary home for at least five consecutive years out of the past eight.

Another crucial change to the credit rule is that the income qualifications of eligible buyers have been increased. The old rule limited the income of a buyer to $75,000, and for married tax payers, $150,000. Now individuals who make up to $125,000, and $225,000 for joint filers, are eligible to receive the applicable credit amount. This is very important in higher income/cost areas, because in those places most first-time buyers wouldn’t qualify for the credit because of their income without the income bump.

There is a limitation on the amount of the purchase price of the new home. The tax credit applies to homes purchased for less than $800,000. This amount should be more than adequate for buyers to get their first or a good “move up” home in the metropolitan Phoenix-Mesa-Scottsdale area.

The credit can even apply to the purchase of a multi-family property. As long as the owner will live in one of the up to four units as a primary residence, the other units could be rented out to provide income!

Of course there is fine print applicable to the eligibility rules. Having a cosigner on your mortgage loan doesn’t exclude you from claiming the credit. But if a married couple, both spouses must qualify (based on their income or past home ownership status) to receive the credit. But if two unmarried individuals buy a home, and only one of the individuals qualifies for the credit, the individual who qualifies for the credit can claim the full credit.

Because of the exclusions and quirks in the law, it is critical that you speak with an accountant or tax professional to get the specifics and to ascertain if you will in fact qualify for the credit. Just receiving the credit can impact other income and tax issues, so proper advice is a must. If you don’t have a tax advisor, we can provide you with the names of people we trust. Whomever you choose to help you with your IRS issues, we will work with them so you can obtain the full amount of credit you are entitled to. Call or contact us at to find your new or resale home before the tax credit is gone for good.

– N. Mark Kramoltz © 2015

Home Buying Taxes

First Time Home Buyer Tax Credit at a Glance

The loss of the new home buyer down payment assistance/gift program in mid-2008 couldn’t have come at a worse time. With the real estate market already slowing dramatically, the disappearance of the most valuable incentive to purchase a new home hit builders hard in the third and fourth quarter of last year.

The replacement for the gift program, the “first time buyer tax credit” is not as valuable because it isn’t down payment assistance, which is what new buyers really need. But the good news is that it applies to more than the traditional definition of a first time buyer, and to more than new home sales.

Answers to your most common questions about the program are below.

What’s a first time home buyer?

Even though the tax credit is stated to be available for “first time home buyers” only, the definition of that term is broader than you would think. A “first time home buyer” is a buyer who has not owned a principal residence during the three year period prior to the purchase. So in fact, it really should be called the “haven’t owned in 3 years” buyer credit.

What if you have owned a home within 3 years but have rented it out?

You qualify, because the test is whether it was your principle residence. Same for ownership of a vacation home. It gets a little complicated for married couples, as the law tests the ownership history of both. So if you have not owned a home in the past three years, but your spouse has owned a principal residence, neither of you qualify for the first time home buyer tax credit.

What type of home qualifies?

First time home buyers purchasing any kind of home – new or resale – are eligible for the tax credit. This includes single family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and even houseboats!

How long is the credit available?

The home must be purchased before July 1, 2009.

What is the Amount?

The maximum credit amount is $7,500, for single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000. Those with more income qualify for a smaller credit.

How does the credit work?

The sale is reported on your tax return, and works like an interest free loan that must be repaid over a 15 year period. You can even choose which year, 2008 or 2009 you report it in under certain circumstances, even if the purchase actually occurs in the other year.

To learn more about the tax credit and other provisions, consult with your tax professional, and visit

– N. Mark Kramoltz © 2015