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Real Estate’s New Strategic Focus | April 30, 2010

January 23, 2010 By Doug Francis

Virginia Governor's Mansion, Richmond VA

Image by DougFrancis via Flickr

Revised to include new 5405 instructions

The world of residential real estate in the U.S. is facing an expiration date of historic proportions in 2010 that buyers and sellers need to pay attention to for a variety of reasons. April 30, 2010 is the last day that buyers and sellers can “enter into a binding contract” for a real estate transaction to qualify for the two, limited time, federal tax credits for buyers of residential real estate.

Having a strategic real estate plan in early 2010 is essential for both sellers and buyers of primary residences especially before the ship has sailed… and it will. Hey, I’m just a real estate agent so ask your tax adviser what’s best for your tax situation.

Attention home Sellers, it ain’t just for first-time home Buyers this time!

Way back in November ’09 when first-time buyers were in a frenzy to close on a home before November 30th, Congress passed The Worker, Homeownership, and Business Assistance Act of 2009 to extend the first-time home buyer tax credit and add a new tax credit for “long-time resident” homeowners. So now the move-up home seller group or downsizing home seller needs a clear strategy for getting a contract on their existing home and then a contract on their new home. These tax credits are for principal or primary home purchases and not intended for investors or people buying second homes.

Home Sellers, if you had planned on moving-up or down this year, then you should realize that buyers this winter have a deadline or extra motivation to snatch-up your home. This is important especially since home inventories are low in many areas (supply vs. demand). And then, once you have that contract in hand,  you can put in a contract on your new home before the April 30th deadline for the “long-term resident” credit if you qualify.

If you are thinking of just waiting until the Traditional Spring Market in 2010, then you really need to think again. Waiting until May to put your home on the market is a strategic error. The motivation of the tax credit can act a little like rocket fuel to qualified buyers to enter into contracts by the April 30 deadline, and I witnessed that phenomenon in the Northern Virginia real estate market last fall as the original deadline approached. This credit is essentially up to $8,000 cash to the first-time home buyer… and that will buy a lot of home furnishings!

I forecast 45% of 2010’s real estate sales are “in escrow” during this period

Here are the important dates as posted on IRS.gov:

  • Binding Contract by April 30, 2010
  • Must Settle on the Purchase by June 30, 2010

First-Time Homebuyer Credit details:

  • Buyer who have not owned a primary residence during the three years up to date of purchase
  • No one under 18 years old
  • Modified Adjusted Gross Incomes up to $125,000 for single filers (reduced credit $125,000-$145,000)
  • MAGI up to $225,000 for joint filers (reduced credit $225,000 – $245,000)
  • No credit on homes with a purchase price over $800,000
  • Maximum Credit of $8,000 or 10% of Purchase price (smaller of the two)
  • Need to file IRS Form 5405
  • New instructions as of January 15th, 2010: Revised 1/10 5405 Instructions

Long-time Resident Credit details:

  • Must have used the same home as a principal or primary residence for at least five consecutive years of the eight-year period on the date of purchase of a new home as a primary residence.
  • Credit up to $6,500
  • Modified Adjusted Gross Incomes up to $125,000 for single filers (reduced credit $125,000-$145,000)
  • MAGI up to $225,000 for joint filers (reduced credit $225,000 – $245,000)
  • Need to file IRS Form 5405
  • New instructions as of January 15th, 2010: Revised 1/10 5405 Instructions

Members of the Armed Forces and certain Federal Employees serving outside the U.S.:

  • You will have an extra year to qualify for the credit

This information is intended as strategic advice to help give readers an overview of the upcoming 2010 real estate market, and you should always consult a professional tax adviser to discuss your tax situation and if you qualify for this tax credit, and how much you are entitled to receive at your price-point.

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Filed Under: Blog, Home Buyer Tips Tagged With: $8000 tax credit, economic stimulus, First-time buyer, real estate, tax credit

About Doug Francis

A Realtor specializing in unique and new homes around Vienna, Virginia, Doug started writing a first-hand blog about his everyday real estate experiences a decade ago. In-depth, helpful and fun has always been the objective. Outside real estate, he was profiled in a commercial for Verisign's "Where the World Clicks" global ad campaign, and was quoted in Money Magazine's Best Places to Live article on Vienna (#3!). He's a Boston University graduate who feels morning coffee is non-negotiable.

Vienna real estate agent Doug Francis

I’m so excited that you found me! Yes, this site covers real estate, but also a lot about lifestyle and  living in Vienna, Virginia outside Washington, D.C.

There is a lot of info here, and you can also contact me with any specific real estate questions. And, at home consultations are available too.

My background… I’ve been an active licensed agent in Virginia for 25 years, work at TTR Sotheby’s International Realty in McLean, and sell homes in all price ranges. I donate to the Town of Vienna tree replacement fund, participate in a neighborhood citizens association, and try my best to stay in shape.

Let me help you: Email doug@dougfrancis.com or call me at (703) 304-6827 to discuss your plans. Cheers!

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About Doug Francis

I am a Realtor with TTR Sotheby's International Realty® just outside Washington D.C. in Northern Virginia. I have been a full-time Realtor licensed in Virginia since 1991, and cover a big territory specializing in the Vienna real estate market and custom homes for sale.

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