Joe Long - Purchase Perfect

The following information is provided by a Licensed Tax Professional in the State of Wisconsin. Any information included in this blog is not tax or legal advice and should not be construed as such.

The passing of the Housing Rescue and Foreclosure Prevention Act has had a large impact so far on my business. To simplify confusion and educate others I have asked a colleague to briefly explain the tax implications of this act, and what it means to homeowners and First Time Home Buyers.

Many know the Housing Act created a large tax incentive for First Time Home Buyers. The Government defines a First Time Home Buyer as "someone who has not owned a principal residence in the United States during the three year period that ends on the purchase date."

"The Housing Act creates a temporary new federal income tax credit. The maximum amount of this new credit is the lesser of (1) 10% of the purchase price of a principal residence or (2) $7,500 (or $3,750 for those who use married filing separate status). The credit is refundable, which means it can be used to offset your entire federal income tax liability with any remaining credit refunded to you."

"The credit is generally available for principal residence purchases after 4/8/08 and before 7/1/2009. For a newly constructed home, the purchase date is considered to be the date you take occupancy. If you purchase a residence from your spouse, ancestor lineal descendant or other related parties you are ineligible for the credit."

"The credit is phased out or completely eliminated if you adjusted gross income (AGI) is too high. The phase out range for unmarried individuals and married individuals that file separately is between $75,000 and $95,000. The phase out range for married joint filers is between $150,000 and $170,000."

"The credit is really just a loan from the government. You must repay it (without interest) over 15 years starting with the second year after the credit was claimed on your 1040. "Each years repayment will be added to that years tax bill. In addition, if you sell the home, or stop using it as your primary residence before the credit has been repaid, an accelerated repayment clause may apply. If so, the unpaid credit balance must be paid with your form 1040 for the year when the triggering event occurs."

This information was provided courtesy of Tom Schloesser, CPA, Hometown Tax and Financial Sc. 110 Enterptise Dr #104 Verona, WI 53593. 608-845-5511

More and more often I have been dealing with buyers looking for "Short Sales" or "Foreclosures" attempting to get the best deal they can. Sometimes these buyers are in a lower price range (here in Dane County the Median Home Price comes in just over $190,000) and they feel foreclosures/short sales are their only options, and sometimes the buyers are investors looking for a good opportunity to "Fix and Flip" a property.

If you are the former, and you are looking to purchase a Short Sale or bank owned property here are a few things you need to know before you begin your home search.

A) Just because Foreclosures are generally on the lower end of the range does not mean a Foreclosure is necessarily your best option. Many Foreclosures or Short Sales require significant repairs before they can be considered live-able. Some of these defect may affect your ability to obtain financing for the home. After you purchase the home and put all of the money in you may end up with a better deal just buying a home that has already been renovated and fits your needs right away.

B) A Foreclosure is a Bank Owned Property and Banks accept the "cleanest" offers they receive. More often than not a Real Estate division of a bank (REO) will accept a lower priced cash offer over a comparable full price offer with a financing contingency. These "cash offers" generally come from investors, can close very quickly and have no contingencies allowing the buyer to back out of his/her contract.

C) A Bank may take up to 60 days to approve a property for Short Sale. A buyer working in a tight time frame to purchase may simply find the process of purchasing a Short Sale tedious and strenuous. The waiting and wondering can be very stressful for some buyers, while some may handle it fine. Be aware that if you are writing an offer on a short sale property you may wait a long time for an answer either way.

D) Make sure you are working with an experienced Realtor and Lender when buying a Short Sale/Foreclosure. An experienced agent will know how to write the strongest offer you possibly can, therefor increasing your likelihood of having your offer accepted. An experienced agent will also assist in coordinating loan commitment and title work to make your loan process as smooth as possible and can advise you as to what physical defects may affect your ability to purchase the property.

E) Get all of your Ducks in a Row before applying for a loan/writing an offer. Bank owned Real Estate divisions want the cleanest offer possible. Buyers needing down payment assistance, seller paid closing costs and other financing contingencies are looked at less favorably then those buyers with their own down payments and closing costs. Work with an experienced lender to make sure your credit is in shape, you have a down payment if necessary and your offer is as clean as possible to increase your chances of Bank acceptance.

Making sure you have a solid offer free of as many contingencies as possible is the best way to increase your chances of having your offer accepted. Remember, buying a foreclosure or short sale does not mean you will receive the best deal in your price range. ALWAYS contact an experienced Real Estate Agent to assist you in your home search.

The West Side Club will be having it's first annual Spring Brats West Saturday May 3rd at the West Side Club from 10-5.

The event will be a fund-raiser to assist the club in offsetting the rising costs of snow removal from this Winter.

Bring your family by for Brats and Prime Rib sandwiches and help a Madison institution raise money at the same time!

Every year the West Side Business Association hosts fund-raisers for:

Family Service, Goodwill Industries, Wisconsin Badger Camp, Madison Area Literacy Council and Toys for Tots.

The West Side Club is located at 437 Hwy M, on the corner of Mineral Point Road and M. If you work or live in the area stop by for lunch and chat with our member volunteers, bring the family!

It's a guaranteed good time and a chance to help us help Madison at the same time! See you there