Lawmakers Push For An Extension Of The $8000 First Time Homebuyers Tax Credit Into 2010 In Proposed Bill

Since earlier this year we’ve been talking a lot about the $8000 first time homebuyer tax credit that was passed as a part of the 2009 Economic Stimulus Package. The credit has been available for first time homebuyers since January 1st, and will continue to be available until November 30th. Now that the program is beginning to wind down, the rumblings about trying to get the program extended or modified have begun. A few months ago there was talk about the tax credit being increased to $15,000, but that never got off the ground.  Another bill that was introduced last month also never got out of committee.  So while there is interest in passing an extension, nothing has come to fruition yet.

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In order to create hundreds of thousands of badly needed jobs and move the economy to higher ground, the National Association of Home Builders (NAHB) today called on Congress to extend and expand the $8,000 first-time home buyer tax credit set to expire at the end of next month.

Testifying before the Senate Banking Committee, NAHB Chief Economist David Crowe warned that builders are reporting that business generated by entry-level buyers is already declining because it is now too late to complete a new home sale in time to take advantage of the tax credit.

To spur job growth, help reduce foreclosures and excess housing inventories and stabilize home values, NAHB is calling on Congress to extend the home buyer tax credit for an additional year through Nov. 30, 2010 and make it available to all purchasers of a principal residence.

The drop in business seen by home builders is real.  The number of building permits for new homes dropped significantly in September

Applications for home building permits, a gauge of future construction, fell in September by the largest amount in five months — a discouraging sign for the housing industry.

The decline, in part, reflected uncertainty about whether Congress will extend a tax credit for first-time homebuyers.

The applications for building permits fell 1.2 percent in September. That’s the biggest decline since a 2.5 percent drop in April and underscored worries that the fledgling housing revival could be derailed by rising unemployment, tighter bank lending standards and the expiration on Nov. 30 of the government’s $8,000 tax credit for first-time homebuyers.

Is The Tax Credit A Good Idea? Some Think It Won’t Make Much Of A Difference

Many in the building and real estate industries are clamoring for an extension of the credit, while others aren’t so sure that the cost of extending the program are worth it.

Housing Secretary Shaun Donovan said at a congressional hearing Tuesday that supporting the housing market “can be very expensive, especially at a time of significant budget deficits.”

The administration will make a recommendation on whether to extend the credit in the coming weeks, after studying data on tax filings from the Internal Revenue Service. While there would be some negative effects if it were allowed to expire, Donovan said, “I do not believe that a catastrophic decline would be the result.

Some analysts and lawmakers are skeptical about extending the credit, arguing that most homebuyers who receive it would have decided to buy anyway. And soaring unemployment is likely to dull the impact of any extension, Mark Vitner, a senior economist with Wells Fargo Securities, wrote in a note to clients.

“Many of the most likely buyers targeted have already taken advantage of the program,” he wrote.

The Newest Tax Credit Bill Piggybacks On Unemployment Benefits

So there is clearly division as to whether the program should be extended.    Other bills to extend the credit and increase the amount it gives to homebuyers have already died a slow death in committee never to again see the light of day.    This week Congress is once again considering another plan that would extend the credit through June of 2010.  Whether this new one will make it out of the committees remains to be seen.

The latest Senate proposal would drop the requirement that the credit be available only to first-time buyers, broadening the reach of the program but also adding to its cost, estimated by congressional analysts at $16.7 billion.

The backers of that idea, Sens. Johnny Isakson, R-Ga., and Christopher Dodd, D-Conn., chairman of the Senate’s banking committee, have suggested that their measure be attached to another pending bill aimed at throwing a lifeline to people hit by the recession, an extension of federal assistance to the millions in danger of exhausting unemployment insurance benefits.

….

The Isakson-Dodd proposal would extend the credit to June 30, 2010. It would also remove the first-time homebuyer requirement and raise the eligibility income limit to $150,000, or $300,000 for a couple. That’s double the current phase-out limits.

Provisions Of The New Proposed Homebuyer Tax Credit

So if this new bill that is piggybacking on an extension of unemployment benefits were passed, it would mean that the tax credit would be extended, and the new provisions would be:

  • You would not need to be a first time homebuyer – that provision would be removed.
  • It applies to homes purchased through June 30, 2010.
  • You must keep the home for three years.
  • The credit is refundable.
  • The credit is for $8,000 or 10% of the home’s value, whichever is less.
  • It phases out for incomes between $75,000 to $150,000 for single and $150,000 to $300,000 for couples.

So while it is still unsure as to whether this particular extension of the first time homebuyer tax credit will be passed, the momentum for an extension to be passed in some form is very real.  I would expect something to be passed at some point this  year.

UPDATE: A new bill has been “agreed to” by Senators, that would extend the credit and add a $6500 Tax Credit for current homeowners.  Details here.

What do you think?  Should the tax credit for homebuyers be expanded to all homebuyers, and extended until June of 2009?  Will the effect it has on our economy be worth it, or will it be just another large expenditure when we are already running huge deficits?  Let us know your thoughts in the comments!

Source: biblemoneymatters.com

Stimulus Check Warning: IRS Can Reduce Your Recovery Rebate Credit for Child Support or Other Debts Owed

Your first- or second-round stimulus check couldn’t be taken away to pay back taxes or other government debts you owe. Second-round stimulus checks couldn’t be garnished to pay child support arrears or money owed to private creditors or debt collectors, either. But what if you didn’t receive a stimulus check – or didn’t receive the full amount – and you’re expecting to get the stimulus money your entitled to by claiming the Recovery Rebate credit on your 2020 tax return?

Unfortunately, thanks to a little-known provision in the COVID-relief law passed in December, most of those protections don’t apply to Recovery Rebate credits. So, if you get a refund on your 2020 tax return because of the credit, the IRS can take it away to pay any child support, state taxes, or other government debts you owe. Banks and other creditors and debt collectors may be able to snatch your refund, too.

The IRS is aware of this situation and has provided some limited relief (i.e., it won’t reduce refunds to pay federal taxes owed by people who claimed the Recovery Rebate credit on their 2020 tax return). Congress could step in and change the law, too. But for now, garnishment of any tax refund you get this year is possible – even if the refund is entirely based on the Recovery Rebate credit.

[Stay on top of all the new stimulus relief developments – Sign up for the Kiplinger Today E-Newsletter. It’s FREE!]

Stimulus Checks vs. Recovery Rebate Credits

Stimulus checks are actually just advance payments of the Recovery Rebate tax credit. As a result, when you calculate the credit amount on your 2020 tax return, you’ll have to subtract the combined total of your first- and second-round stimulus checks (assuming you got them). If you still have a credit left after subtracting out these stimulus payments, it will lower your tax bill, trigger a tax refund, or make your refund bigger. If the amount of your stimulus checks equal or exceed the amount of the credit, you don’t have to repay the difference.

The amount of each stimulus check and the amount of your Recovery Rebate credit are generally calculated in the same way. However, the IRS relies on different sources of information to determine the amount of each – that’s one of the reasons why the two amounts could be different. For first- and second-round stimulus checks, the IRS mainly looked at your 2019 tax return. If you didn’t file a 2019 return, they looked for a 2018 return to calculate first-round payments. If you didn’t file a 2018 or 2019 return, the IRS may have gotten the information it needed from a special online portal for non-filers or from a government agency that pays you benefits, such as the Social Security Administration or Department of Veterans Affairs.

There are other reasons why the combined total of your first- and second-round stimulus checks and your 2020 Recovery Rebate credit are not equal. For instance, if you had a child in 2020, the extra $500 or $600 amount added to first- and second- round stimulus checks for qualifying children wouldn’t have shown up in your stimulus payments, but the extra amounts will be tacked on to your Recovery Rebate credit. Some Americans had their stimulus checks reduced because of their 2019 income, but because of lost income in 2020 their Recovery Rebate credit won’t be lowered. Many people didn’t receive one or both of their first two stimulus checks simply because the IRS didn’t have enough information to process a payment for them. Prison inmates were unlawfully denied their first-round payments, but the correct amount will be included in their tax credit. There are many other situations that could trigger a positive Recovery Rebate credit on your 2020 return, including that the IRS simply messed up and sent you a stimulus check for the wrong amount.

Are Recovery Rebate Credit Garnishments Unfair?

Because of the tax-law change made in December, “the rug is being pulled out from under eligible individuals with outstanding debts,” said Erin Collins, National Taxpayer Advocate, in a January 28 blog post. “Since the spring, the IRS reassured these taxpayers that if they claim the [recovery rebate credit] when they file their 2020 returns, they will get the full amount of stimulus money they are eligible for and be made whole. Now that reassurance turns out to be inaccurate based upon the law change.”

Here’s the situation, according to Collins:

  • People with certain outstanding debts who received the full amount of their stimulus checks didn’t have their payments subject to garnishment (except for past-due child support for first-round payments), but
  • People with similar outstanding debts who didn’t receive the full amount of their stimulus checks will receive a reduced Recovery Rebate credit or nothing at all when they claim it on their 2020 tax return.

“This disparate result undermines public confidence in the fairness of the tax system,” said Collins. “Financially struggling taxpayers who were entitled to receive the full amount of the [stimulus check] last year but did not have effectively been harmed once. It is unfair to harm some of these taxpayers a second time by seizing some, or all, of their stimulus payments.”

Possible Solutions

In a March 15 blog post, Collins said the IRS won’t reduce Recovery Rebate credits to satisfy federal tax debts. That will help, but it won’t stop refund reductions to pay for other debts. Plus, there’s still the question of what to do about people who filed their 2020 tax return and had their refund reduced or taken before the IRS implements this new policy.

A better solution for taxpayers is for Congress to reverse the December change so that all the garnishment protections allowed for stimulus checks are made applicable to the Recovery Rebate credit as well. This adjustment wasn’t included as part of President Biden’s $1.9 trillion American Rescue Plan, but perhaps it will be addressed in future legislation.

Source: kiplinger.com

8 Things You Need to Know About May 17 Tax Deadline Extension

If you haven’t gotten around to filing your 2020 taxes yet, you just got an extra 32 days to submit your return. The IRS announced Wednesday that it will extend the April 15 deadline to May 17. For residents of Texas, Louisiana and Oklahoma, the deadline had already been extended to June 15 due to the severe winter storm in February.

Accountants had urged the IRS to push back the deadline. Tax season didn’t start until Feb. 12, about two weeks later than usual. The $1.9 trillion American Rescue Plan passed in the middle of tax season, and the IRS has yet to give guidance on some of its provisions, making for an extra complicated tax season.

7 Things to Know About the Tax Deadline Extension

So what does the tax extension mean for you? Here are seven things you should know if you’re trying to decide whether you should take advantage.

1. You don’t have to do anything to get the extension.
Like last year’s extension, which gave taxpayers an extra three months to file returns, this one is automatic. The IRS won’t penalize you as long as you file by May 17.

2. The IRS is still processing returns as usual.
If you’re getting a refund and you don’t need more time to get your return in order, there’s no reason to wait until May 17 to file. Same goes for if you know you owe money and you can afford to pay it. Most online returns are processed within 21 days, according to the IRS.

But whatever you do, DO NOT file a paper return. The IRS is still working through a monstrous backlog of 2019 returns submitted by mail. If you file on paper, you’ll likely be waiting for them to process your return for months.

3. Waiting to file could delay your stimulus money.
If you’re eligible for stimulus money and you haven’t received it, your 2020 tax return could be your ticket to cash. If you’ve never filed before and no one can claim you as a dependent for 2020, filing a return could get you $3,200: an $1,800 rebate recovery credit from the first two payments of $1,200 and $600, plus the latest $1,400 stimulus check.

Parents of children born in 2020 will also get more money for filing. Those little stimulus babies will qualify for an extra $1,100 credit from the first two rounds on top of $1,400 for the third payment.

4. You get more time to fund your IRA and HSA.
Tax day is the deadline for funding an individual retirement account, or IRA. That means you now have until May 17, 2021, to max out your Roth IRA or traditional IRA contribution for 2020. The limits for both 2020 and 2021 are $6,000 if you’re younger than 50 or $7,000 if you’re 50 or older.

Ditto on your health savings account or HSA. In 2020, individuals can contribute up to $3,550, while families can contribute $7,100. Those limits rise to $3,600 and $7,200, respectively for 2021. People 55 and older are allowed to save an extra $1,000 for each tax year.

You can still contribute for 2020 even if you’ve already filed. This is easiest if you’re funding a Roth IRA. Your contributions aren’t deductible, so you don’t have to report them on your return. It’s more complicated, though, with deductible contributions to a traditional IRA or HSA. If you’ve already filed, you’d need to submit an amended return to take advantage.

5. Your state taxes may still be due April 15.
If you live in one of the 41 states with income taxes, your state taxes could still be due April 15. Check your state’s tax agency website to see if your deadline has been moved.’

6. Freelancers still need to make estimated payments by April 15.
If you’re a freelancer or you have a side gig that doesn’t come with a W-2, you’re required to make quarterly estimated payments by Jan. 15, April 15, June 15 and Sept. 15. These deadlines haven’t changed, so plan to pay your freelancer taxes for Jan. 1 through March 31 by April 15, as usual.

7. Your deadline will still be Oct. 15 if you file an extension.
You can automatically get more time to complete your return by filing for a tax extension, but the regular Oct. 15 deadline will still apply. Keep in mind that an extension buys you more time to file, but it doesn’t give you more time to pay. If you owe taxes, you’ll start incurring penalties after May 17.

What Should You Do if You Can’t Afford Your Taxes?

If you can’t afford your tax bill now, be honest with yourself. Do you think your financial situation will be dramatically different in two months?

If the answer is no, it really doesn’t make that much sense to put off filing. You can submit your return, even if you can’t afford to pay anything. You can typically qualify for an IRS payment plan online in just a few minutes.

Regardless of when you file, just know that the penalties are much steeper for not filing than they are for not paying. Fail to file a return and you’ll be charged 5% per month plus interest, up to 25% of your bill. Fail to pay and you’ll pay just 0.5% (or 0.25% if you’re on a payment plan), plus interest, up to 25% of the balance.

The bottom line: Whatever you do, never try to hide from the IRS.

Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected].

Related posts:

10 Things We Know About the Stimulus Bill’s $3,000 Child Tax Credits

Class of 2020, Here’s How You Can Claim Your $1,800 Stimulus Check

8 Reasons You Could Get More Stimulus Money When You File Your Taxes

If You Got Unemployment in 2020, the Stimulus Bill Has a Tax Break for You

5 Things You Must Know About Biden Stimulus if You’re Unemployed

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Source: thepennyhoarder.com

Can You Include Tax Debt in a Bankruptcy?

Including Tax Debt in a BankruptcyMany Americans struggle with paying their federal taxes. Even though you know you have to pay taxes every year, you have found it impossible to do. You may hear people complain about student loans, credit cards, and rent or mortgage payments, but their tax debt can be just as much of a headache.

Bankruptcy has helped many people who have found themselves unable to manage their debt, but if you are considering bankruptcy, you may have questions about your tax debt and whether or not this debt can be included.

What is bankruptcy?

Tax debt is just another financial burden that many Americans are looking to unload, making bankruptcy very appealing to those who have an ever-growing pile of debt. Bankruptcy is a legal process of eliminating or decreasing a person’s debt. There are several bankruptcy chapters available to individuals, but you’ll likely choose between Chapter 7 and Chapter 13 bankruptcy when dealing with tax debt.

Each chapter will determine how much of your debt, what kinds of debts, and how the debt will be reduced or discharged. For example, Chapter 7 will require the debtor’s assets to be sold to repay debts.  Chapter 13 requires debtors to repay all or a portion of the debt over three to five years.  Depending on your financial situation, you may not even qualify for Chapter 7.

Can you include tax debt in bankruptcy?

Your primary motivation for filing bankruptcy may be to relieve yourself of all responsibility for your debt. You may have accrued various debts over the years, but your tax debt may be the one that is the most overwhelming. Bankruptcy can give you the relief you need, but keep in mind that certain debts cannot be discharged through bankruptcy. Luckily, Federal tax debt can be included in a bankruptcy, so it could be the answer to your problems when you simply can’t afford to pay off this debt.

Between the available bankruptcy Chapters, or options, many consumers opt for Chapter 13. This specific chapter of bankruptcy does have requirements, so not every taxpayer is eligible. You’ll want to make sure you are what the IRS considers a wage earner, self- employed or sole proprietor of a business.

Additionally, if you are planning to file Chapter 13, there are a few things you will want to note about filing your taxes.

  • Taxes must be filed every year during your bankruptcy.
  • Taxes must be filed for every year within four of your bankruptcy.
  • Taxes must be paid by the due date.

Should you file for bankruptcy?

Many people choose to file bankruptcy when they can’t afford to pay down their debt. Before opting for bankruptcy, you will need to have a clear picture of things. Consider evaluating your circumstances and financial situation, including your income, total amount of debt, expenses and more, to determine if you truly cannot afford to pay down your debt.

Keep in mind that while filing bankruptcy may eliminate or reduce a person’s debt, the negative impacts shouldn’t be ignored. For example, filing bankruptcy will affect your credit score and your ability to obtain new credit. Before filing for bankruptcy, consider the effects, how long they will last and what plans you may have for your financial future that may have to be put on hold until you recover from bankruptcy.

Ultimately, it is up to you if you wish to file for bankruptcy. It is understandable that when your debt becomes overwhelming, you will start to consider the many ways you can get relief. If bankruptcy is the ideal solution for your situation, then you should be debt-free in a matter of years.

Have questions about how bankruptcy may affect your credit or how you can recover from bankruptcy quickly? Schedule a free consultation with us today!

Source: creditabsolute.com

First Time Homebuyer Tax Credit May Be Extended To All Homebuyers And Increased to $15,000 Through New Bill

The last few months have seen an increase in home sales to first time homebuyers, as well as a slight improvement in the real estate market as a whole.  A lot of people feel that this is largely due to the first time homebuyer tax credit that the Obama administration passed earlier this year. The measure, which was passed as a part of February’s stimulus package, gives first time homebuyers tax credits of up to $8000 when they buy their first home.  It certainly is an attractive offer if you’re looking for a home anyway – and we have several friends that have bought homes this summer because it was such a great deal.

A couple of weeks ago I wrote about how the time that was available to take advantage of the tax credit was quickly running out.  The credit is only applicable to home purchases that have been completed by December 1st, and since most home closings can take anywhere from 30-60 days,  if you haven’t already put in a purchase agreement on a house by now, you may be out of luck!

For a lot of people that is going to come as a big shock and a disappointment, but all hope is not gone!   Congress is already talking about extending the program, and possibly expanding it to all homeowners and increasing the credit to $15,000.  It is far from a done deal, but it is currently being debated by our legislators.

the National Association of Realtors wants to expand the tax credit to $15,000, and it wants to allow all buyers to be able to qualify, not just those who have been out of the market for three years, according to The New York Times. The $15,000 figure is actually the amount that the credit’s initial sponsor in Congress, Sen. Johnny Isakson, R-Ga., a former real estate agent, had wanted. Now Isakson is introducing a bill that would provide up to a $15,000 tax credit to any buyer who stays in their newly purchased home for a minimum of two years, according to the Times.

So Congress currently has bills that are being put forward that would extend the tax credit, increase it to $15,000 and allow all homebuyers (not just new homebuyers) to take advantage of the credit.  Whether this bill will pass is another matter.  It is currently up for debate, and the president is debating whether continuing it would be a good plan.

Asked about whether the Obama administration would consider extending the credit, White House spokesman Robert Gibbs said the administration’s economic team was evaluating the impact on new home sales and would make a recommendation to the president, according to the Associated Press.

The tax credit has been expensive, but it has arguably been successful in helping the ailing real estate and construction industries survive in recent months. However, like other supposedly temporary tax credits, the First-Time Homebuyer Tax Credit may end up being called the Perennial Homebuyer Tax Credit.

One of the biggest problems the bill faces is the price tag.  Estimates say that it could cost anywhere from $50 billion to $100 billion dollars.   Whether that is worth it right now is debatable.

Only time will tell if Washington will decide to continue the program.  If they do I can already hear all of the people complaining that they “only got $8,000”, or from others who want this credit to become permanent – not just a one-time deal.

UPDATE:  New First Time Homebuyer Tax Credit Bill Extension Introduced

A bill introduced last night after I wrote this post would now extend the tax credit for another 6 months, while not changing the the amount of the credit,  or who is qualified to receive the credit.  From housingwire.com:

A senate bill introduced late Thursday would extend the $8,000 first-time homebuyer tax credit for six months after its current November 30 expiration date.

Maryland Democrat Sen. Benjamin Cardin introduced S.B. 1678, and it is co-sponsored by senators John Ensign (R-Nev.), Johnny Isakson (R-Ga.), Senate majority leader Harry Reid (D-Nev.) and Debbie Stabenow (D-Migh.)…

The bill would not change anything on the tax credit except its expiration date, although at least one housing industry group is calling for an expansion of the credit and another, the National Association of Realtors (NAR), has urged an extension of the tax credit.

So if this were to particular bill were to pass, the tax credit would be extended, but not increased or changed to include all homebuyers.

UPDATE:  11/5/2009

Bill passed by Senate and House to extend the $8000 tax credit. Now only needs to be signed by the president.  Extends the bill to include a $6500 current owner homebuyer tax credit.

What do you think?  Should the tax credit for homebuyers be increased to $15,000 and be expanded to all homebuyers?  Will the effect it has on our economy be worth it, or will it just be another over-reaching expenditure of taxpayer money?  Would you rather they just extend the current program? Let us know your thoughts in the comments!

Source: biblemoneymatters.com