Jules Yates

The Traverse City Market - Just how bad is it? Is it as bad as the media makes it sound? You tell me. Take a look at the recently published statistics for sales as of June (Year to Date) of the Traverse Area Association of Realtors below.

** UPDATED July 3, 2008 ***

SOURCE: Traverse Area Association of Realtors

The average price of a single family home have only dropped 11% from the high in 2006. The number of units sold is down 19% from the high in 2005. That is only down 12% from last year. Overall this is not nearly as bead as the media might make us believe. Based on the national average I think it is safe to say we are doing quite well.

My advice is to stop watching the news and invest in Traverse City. Prices are at a record lows and sellers are motivated so lets get out there and stimulate the economy.

Many of you may have heard about the Housing and Economic Recovery Act of 2008 where a first time home buyer can receive up to $7,500 Tax Credit. Keep in mind this is not a tax deduction it is a credit (i.e. - Cash).

What's the difference? With a deduction you only save the percentage of tax you would have paid given your tax bracket (If you are in a 15% tax bracket, a $7,500 deduction would only save you $1,112). In this case it is straight credit.

Basically you fill out some simple forms and presto you can receive a check in the amount of up to $7,500 when you file your next tax return. Best of all you can get the money ahead of time as long as you purchase a home by 1, 2009.

If you purchased a home after April 9, 2008 or will be before July 1, 2009 (and you qualify) you will get up to $7,500 cash credit on your next tax return. This is a goverment loan basically and you need to pay it back over a number of years but it is interest free (see below).

Below are FAQ's from http://www.FederalHousingTaxCredit.com .

1. Who is eligible to claim the $7,500 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 April 9, 2008 and before July 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs.

2. 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. 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.

3. 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. No other applications or forms are required. No pre-approval is necessary; however, prospective home buyers will want to be sure they qualify for the credit under the income limits and first-time home buyer tests.

4. What types of homes will qualify for the tax credit?
Any home purchased by an eligible first-time home buyer will qualify for the credit, provided that the home will be used as a principal residence and the buyer has not owned a home in the previous three years. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats.

5. Instead of buying a new home from a home builder, I have 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 April 9, 2008 and before July 1, 2009.

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

6. 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.

7. 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 $7,500 are available for some taxpayers whose MAGI exceeds the phaseout limits. The credit becomes totally unavailable for individual taxpayers with a modified adjusted gross income of more than $95,000 and for married taxpayers filing joint returns with an AGI of more than $170,000.

8. 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 $7,500 by 0.5. The result is $3,750.

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 $7,500 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,625.

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.

9. Does the credit amount differ based on tax filing status?
No. The credit is in general equal to $7,500 for a qualified home purchase, whether the home buyer files taxes as a single or married taxpayer. However, if a household files their taxes as "married filing separately" (in effect, filing two returns), then the credit of $7,500 is claimed as a $3,750 credit on each of the two returns.

10. Are there any circumstances for which buyers whose incomes are at or below the $75,000 limit for singles or the $150,000 limit for married taxpayers might not be able to claim the full $7,500 tax credit?
In general, the tax credit is equal to 10% of the qualified home purchase price, but the credit amount is capped or limited at $7,500. For most first-time home buyers, this means the credit will equal $7,500. For home buyers purchasing a home priced less than $75,000, the credit will equal 10% of the purchase price.

11. I heard 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 taxpayer qualified for the $7,500 home buyer tax credit. As a result, the taxpayer would receive a check for $6,500 ($7,500 minus the $1,000 owed).

12. What is the difference between a tax credit and a tax deduction?
A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $7,500 in income taxes and who receives a $7,500 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 $7,500 in income taxes. If the taxpayer receives a $7,500 deduction, the taxpayer's tax liability would be reduced by $1,125 (15 percent of $7,500), or lowered from $7,500 to $6,375.

13. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
No. The tax credit cannot be combined with the MRB home buyer program.

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

15. 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.

16. Does the credit have to be paid back to the government? If so, what are the payback provisions?
Yes, the tax credit must be repaid. Home buyers will be required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed. If the home owner sold the home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven.

17. Why must the money be repaid?
Congress's intent was to provide as large a financial resource as possible for home buyers in the year that they purchase a home. In addition to helping first-time home buyers, this will maximize the stimulus for the housing market and the economy, will help stabilize home prices, and will increase home sales. The repayment requirement reduces the effect on the Federal Treasury and assumes that home buyers will benefit from stabilized and, eventually, increasing future housing prices.

18. Because the money must be repaid, isn't the first-time home buyer program really a zero-interest loan rather than a traditional tax credit?
Yes. Because the tax credit must be repaid, it operates like a zero-interest loan. Assuming an interest rate of 7%, that means the home owner saves up to $4,200 in interest payments over the 15-year repayment period. Compared to $7,500 financed through a 30-year mortgage with a 7% interest rate, the home buyer tax credit saves home buyers over $8,100 in interest payments. The program is called a tax credit because it operates through the tax code and is administered by the IRS. Also like a tax credit, it provides a reduction in tax liability in the year it is claimed.

19. 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.

20. 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.

21. Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2008 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 future home 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.

Do you believe in Ghosts? I guess this is appropriate considering we are so close to Halloween. I was asked yesterday by a friend if I believed in ghosts and to her amazement I said, "I don't exactly know if I believe in ghosts but I do have an interesting story that is pretty convincing".

This is a true story and it did happen... no joking. Basically I am a pretty logical person and I rarely get superstitious or believe in ghost stories but one night (about 20 years ago) my brother and I were basically camping in an old guest quarters of an old home located on a pristine wilderness like lake 16 miles west of Traverse City in Northern Lower Michigan.

As I said this was a detached garage/guest house of an old home built by the Wagner family (of Chicago) back in the early 1930's. It had basically been abandoned long, the house anyway. The detach garage had a small guest quarters in back with a small living room, small bath and small bedroom. It was tiny but it had a large brick fireplace in it and it beat camping in the yard.

I should mention that this house sat on a 230 acre parcel which we were developing into 21 lakefront lots on Pearl Lake. Visit www.PristineLake.com to read about the history of the lake. Anyway my brother and I (age 19 & 20 at the time) were talking about ghosts as boys do while setting in a creepy old house when there are no neighbors within shouting distance.

I was sitting on an old couch and I had a radio plugged into a socket above my left shoulder. The radio was on the back of the couch next to the plug and the cord was slack. My brother said I don't believe in ghosts and I agreed. He no more got that out of his mouth when the cord literally flew out of the wall and landed next to him on the floor.

It was an eerie silence considering the radio had been blasting. Being a skeptic I assumed it was a power surge or some other electrical issue. After all the cottage was 60+ years old. I must note that the lights didn't flicker at the time so that was an unlikely possibility.

I plugged the radio back in and we continued to talk. We commented that it was a fluke and that it couldn't be a ghost. That instant the light in the bedroom snapped off. I know what you are thinking... the bulb burned out. Actually no...this house had an antique light switch that makes a loud snap when it is turned. It only goes one way and it is either on or off. This had literally turned off. You had to turn it like a dial.

At that point I tried the light and it turned back on. At this time I was a believer in something. Had I not had a witness with me I would probably never tell this story but it happened. Sorry if it wasn't about an floating head or something but it still makes you think doesn't it.

Vacant land prices in Northern Michigan (in particular the Traverse City Region) seem to be flat. I have not seen any major price drops on vacant waterfront property in the past year. In fact I have seen most prices hold firm. Unlike the stock market which can plummet on a frenzy of sales, land is different. In order from prices to fall you need to be able to sell.

Fortunately most people who own waterfront property are financially stable and don't need to sell. They have the option of waiting for the market to turn which seems to be the case. I will admit some developers are willing to slash huge discounts off property if a buyer makes an offer but they are not necessarily making this public by lowering the prices in our MLS.