i guess i don't understand this "tax credit". If the first time homebuyer gets a $7500 tax credit, why do they have to pay it back? and if they have to pay it back it's not really a credit but a short term loan to help them qualify?
Typical of Congress. The IRS also has to manage the credit for increased R&D and various other boondoggle credits (total giveaways of taxpayer money with absolutely no public oversight), referee divorces, collect child support, provide welfare payments (EITC, except that its paid in a yearly lump sum to people who will surely blow it in a week and probably pay loan shark interest rates to get the refund a week or two early).
All part of the Republicans' magical belief in tax cuts. We don't need government agencies to adminsiter welfare or to support small businesses or anything else. We just need targeted tax cuts administered by an agency that isn't much bigger than it was a couple generations ago when the population, the economy, and the tax code were fractions of their present sizes.
'You can't exactly make it difficult for people to know when and how much to pay you and then turn around and slap them with penalties and fines if they don't follow the rules'
Have you seen the rules, forms, and penalties involved in retirement accounts?
It's a housing subsidy to try and prop up the housing market - it is a loan, though at 0% interest - and you won't get it unless you owe at least $7500 in taxes so it comes in on the back end (doesn't seem like it will help people qualify for a house).
IMHO it would be better (or, more exactly, less bad) to make this a straight-out gift, similar to the first-home-buyer grant we have here in Australia.
You could even make the payment available to existing home owners, maybe with a priviso that the payment could only be used for principal reduction and/or arrears payments on an existing mortgage.
OK, the amounts being talked about would have little impact in places like California, but it seem to me there are parts of the US where a few thousand might make all the difference.
(I note that in Oz there are a couple of relatively easy ways for the Federal Government to prevent double-dipping except via out-n-out fraud. I don't know if this is true in the US.)
Any luck at all and the whole damn system will implode and have to be restarted from scratch. I all most couldn't be any worse then the mess we have now.
Have you seen the rules, forms, and penalties involved in retirement accounts?
As a matter of fact, I have.
I have also seen plenty of Option ARM notes and disclosures.
Yet a judge has certified a class action against Chevy Chase bank that may involve consumers getting their mortgages cancelled because the loan was too complicated for them to understand. Apparently the view is that lenders cannot collect against borrowers who cannot figure out the difference between a "fixed payment" and a "fixed rate." "I took the advice of some idiot mortgage broker who is paid to sell me stuff" is now grounds for getting out of your mortgage.
But we can call a "loan" a "tax credit," and if that confuses people the IRS can still audit your ass and charge you penalties. And the IRS won't care if you listened to some idiot mortgage broker who is paid to sell you stuff, either.
Congress structured this credit as a "loan" because of our ballooning budget deficits. It gives them a misleading campaign line about a $7,500 credit and they kick the problem down the road...
Yet a judge has certified a class action against Chevy Chase bank that may involve consumers getting their mortgages cancelled because the loan was too complicated for them to understand.
Wow, talk about a slippery slope. Thank God our soldiers never complain about all that confusing paperwork they had to sign.
# 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).
Ooops. I finally read that page and it is put up by the NAHB (not the IRS) with a disclaimer at the bottom. Pretty slick. Can't find squat from the IRS website about it.
Interesting name for a loan. This is truly secured debt. Uncle Sam follows you to the next world to collect if necessary.
Overall I approve of this wasteful and stupid tax regulation as it helps keep my bill rate up. I'm tired of moonlighting at the drive-through window.
An easy way to keep track of the sales would be to require that whoever does the closing to issue a 1099 to the seller. Then the seller would enter the sale on their taxes with the gross amount of the sale and zero taxable. (Like they do for Social Security)
The closers/title companies already issue 1099s for sales that don't qualify for the tax free status, so it wouldn't be a biggie for them. The sellers would only have to put a line item on their taxes.
The IRS has computers to compare the information on the 1099s to the sellers tax returns. If there are any questions they will send you a letter.
If there is no gain, however, the remaining loan is forgiven.
I'm sure no one has considered flipping a house for the same price to multiple first time buyers to take advantage of the tax credit. What reputable real estate professional would even contemplate such an arrangement? Straw buyers need to line up to the right.
It would probably have taken less than an hour of discussion within the IRS to rough out the basics of how this ought to track through. Apparently they haven't even done that simple amount of work.
A couple of those one dollar Detroit houses would fit the bill. Jeez, this is a charitable donation. Anyone who doesn't think they'll buy a house in the next few years, can buy the house through my company and sell it the next day and realize a thousand dollar profit from the IRS! I don't think $6500 is too much to charge for this valuable service.
The tax credit/loan is for 10% of the purchase price of a home up to a cap of $7,500 (for homes $75,000 or more). So, for a $1 house you would qualify for a 10 cent tax credit/loan.
An easy way to keep track of the sales would be to require that whoever does the closing to issue a 1099 to the seller.
Yes, but Singletary's point is this: you sell home on 1/1/2009. You receive $6000 in proceeds.
You pay this to the IRS on April 15, 2010.
Sure, everybody's really good at socking that money into a savings account to cover that tax bill. That's why we don't have withholding laws in this country.
The "easy" way to do it would be for the IRS to put a lien on the property once the tax credit was claimed, so that the closing agent could just pay it off at closing out of seller proceeds and release the lien.
Easy for sellers, that is. Not easy for the IRS, so it won't happen.
Trust me the person who owes the money is mostly not gonna tell the title company when they close. And it least half of the time it will be because they didn't realize what was happening.
Yes, but Singletary's point is this: you sell home on 1/1/2009. You receive $6000 in proceeds.
Not if you use my company, EscrowBogusFee.org!
We charge you the $7000 profit and in six months pay you $6500 for sending back a postcard. Your profit has magically turned into regular income! Taxed at regular rates and the debt is forgiven.
I think there are laws against scamming the IRS, but if they can't shut down DAPs how are they going to catch this?
I don't know... how many hours and how many dollars can the IRS spend to chase average joe - who doesn't have the $$$ anyway and never will? As you've pointed out, thus won't work on the honor system. That means either take the operation out of 'unofficial' hands or spend the rest of your life enforcing the rules on a herd of cats.
The IRS loves to audit low-income filers who hosed up (or outright cheated) on the EITC to collect a few thousand bucks. It plays so well with the "poor people are sharks" constituency in Congress.
Rich people who use fancy shelters to hide millions? Not so much.
In general it isn't the IRS job to interpret statutes, their job is more or less to follow the instructions.
Congress writes the instructions, and then Treasury further explains the instructions through income tax regs.
This project will probably be hot-tracked at Treasury, which means the person assigned to the project is tasked with producing final regs within one year. Prior to that proposed regs will be issued, and Treasury will probably tell taxpayers that they can rely on the proposed regs without fear of penalty.
Re Chevy Chase class action. Not sure if you know, but TILA (truth in lending act)is a fee shifting statute. If the bank loses, bank pays attorney fees for plaintiff. That's enough to get attorneys to bring suits alleging misrepresentation. Recasts are a logical place to allege this, because who can clearly explain such an arcane consequence to J6P?
I'm not sure where the lawyers were when these complex loans were mass marketed. Possibly with the underwriters?
"You can't exactly make it difficult for people to know when and how much to pay you and then turn around and slap them with penalties and fines if they don't follow the rules"
YOU can't, but the IRS can. Have you read any tax code lately? I think you are being a bit naive and you may not have much experience with the IRS.
"and you won't get it unless you owe at least $7500 in taxes so it comes in on the back end (doesn't seem like it will help people qualify for a house).
Unless I am misunderestimating something here..."
I will look again, but I seem to recall it being a "refundable" credit, meaning the taxpayer will receive the $7500 whether they pay taxes that year or not.
Congress never sends a law to the IRS, it sends the law to the Department of the Treasury, and then it is Treasury's problem.
IRS is only culpable if it fails to follow Treasury's guidance, if Treasury issues none, then that is Treasury's bad.
It is frustrating for all involved when Congress enacts tax laws without rhyme or reason, as it has for decades, but then that is why they all have secure jobs.
[You can't exactly make it difficult for people to know when and how much to pay you and then turn around and slap them with penalties and fines if they don't follow the rules.]
So THAT'S how they're going to pay for this bill!
In some ways, the IRS is just as bad as the lousy servicers in handling these matters.
I'm sure the FHA loan portion of this bill will be a much, much smoother transition.
I wonder if this tax credit isn't the reason they caved in on the DAPs. I mean, the tax credit will probably substitute the DAPs !!! (7.5k is more than 3% up to $225k, this probably isn't a coincidence)
Why fuss over the administration of the process for getting the money back? The pols who enabled this law (Frank, Dodd, Schumer, Paulson etc) don't care if the money gets repaid. The clawback was always about appearances, just a little grease on the skids to get passage of the law over the finish line.
If house prices go up in the future, there will be some collection, even with a lousy administration system. Even partial collection will allow a case to be made that everyone's intentions were honest all along. It house prices go down, people will say that extraordinary and exigent circumstances forced forgiveness of most of the money.
Who in their right mind would want to deal with all of that crap in this housing market? And what is it exactly that was enacted? Is it a "loan" or a tax "credit"? In my understanding the two terms are mutually exclusive: a credit is something you don't have to pay back.
Hmmm... financing the future via fees and penalties on the "home buyer's credit?" Sure, why not - I bet the IRS would love to scalp some taxpayers over this one. Just wait and watch as it becomes really complicated to handle this thing and the fees start flying!
Tanta I can not agree w/ you more regarding Michelle. I read here articles in the WaPo avidly and have her color of money weekly set up for e-mail to me automatically. She actually had another piece in the post on the overly complex faux tax credit for home purchase. She highlights the pros & cons of taking it and at least for her test case comes to the conclusion not to take it. (Link at end)
Was the 2k credit passed back in the 70's during the Ford administration for home purchases just as complex? I say if your going to do it, just make it a straight tax credit for everyone, and lower the amount to make it affordable for the gov't.
Good morning Tanta!
Good morning, dear.
That might be true where you're posting from.
i guess i don't understand this "tax credit". If the first time homebuyer gets a $7500 tax credit, why do they have to pay it back? and if they have to pay it back it's not really a credit but a short term loan to help them qualify?
Typical of Congress. The IRS also has to manage the credit for increased R&D and various other boondoggle credits (total giveaways of taxpayer money with absolutely no public oversight), referee divorces, collect child support, provide welfare payments (EITC, except that its paid in a yearly lump sum to people who will surely blow it in a week and probably pay loan shark interest rates to get the refund a week or two early).
All part of the Republicans' magical belief in tax cuts. We don't need government agencies to adminsiter welfare or to support small businesses or anything else. We just need targeted tax cuts administered by an agency that isn't much bigger than it was a couple generations ago when the population, the economy, and the tax code were fractions of their present sizes.
Have you seen the rules, forms, and penalties involved in retirement accounts?
A loan....? Why the heck do they call it a credit? Boy are Realtors and Mortgage Brokers going to abuse this one (don't forget the politicians).
Anon,
It's a housing subsidy to try and prop up the housing market - it is a loan, though at 0% interest - and you won't get it unless you owe at least $7500 in taxes so it comes in on the back end (doesn't seem like it will help people qualify for a house).
Unless I am misunderestimating something here...
IMHO it would be better (or, more exactly, less bad) to make this a straight-out gift, similar to the first-home-buyer grant we have here in Australia.
You could even make the payment available to existing home owners, maybe with a priviso that the payment could only be used for principal reduction and/or arrears payments on an existing mortgage.
OK, the amounts being talked about would have little impact in places like California, but it seem to me there are parts of the US where a few thousand might make all the difference.
(I note that in Oz there are a couple of relatively easy ways for the Federal Government to prevent double-dipping except via out-n-out fraud. I don't know if this is true in the US.)
Any luck at all and the whole damn system will implode and have to be restarted from scratch. I all most couldn't be any worse then the mess we have now.
Have you seen the rules, forms, and penalties involved in retirement accounts?
As a matter of fact, I have.
I have also seen plenty of Option ARM notes and disclosures.
Yet a judge has certified a class action against Chevy Chase bank that may involve consumers getting their mortgages cancelled because the loan was too complicated for them to understand. Apparently the view is that lenders cannot collect against borrowers who cannot figure out the difference between a "fixed payment" and a "fixed rate." "I took the advice of some idiot mortgage broker who is paid to sell me stuff" is now grounds for getting out of your mortgage.
But we can call a "loan" a "tax credit," and if that confuses people the IRS can still audit your ass and charge you penalties. And the IRS won't care if you listened to some idiot mortgage broker who is paid to sell you stuff, either.
Mortgage meltdown: Here come the judgments - Aug. 20, 2007
Congress structured this credit as a "loan" because of our ballooning budget deficits. It gives them a misleading campaign line about a $7,500 credit and they kick the problem down the road...
Yet a judge has certified a class action against Chevy Chase bank that may involve consumers getting their mortgages cancelled because the loan was too complicated for them to understand.
Wow, talk about a slippery slope. Thank God our soldiers never complain about all that confusing paperwork they had to sign.
Here's a link the gov has out there with a FAQ on the tax credit:
Federal Housing Tax Credit: Home
Energyecon, it is a refundable tax credit.
# 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).
If the IRS isn't tracking whether you sold the house, it's effectively a 7 year loan, period. Just don't get audited.
Ooops. I finally read that page and it is put up by the NAHB (not the IRS) with a disclaimer at the bottom. Pretty slick. Can't find squat from the IRS website about it.
Ooops. I finally read that page and it is put up by the NAHB (not the IRS) with a disclaimer at the bottom.
You know this is one reason why we expect people who quote things to provide links.
Doc,
Thanks - is it just me or does that NAHB web site describe the loaned tax credit like a cash out refi (the item #11 quote)?
Sorry, Tanta
thanks Tanta. Jeez is this a boondoggle or what?
the essence of good management (be it govt, business, beurocratic, etc) is simplicity.
we sorely need a more simple system. this isn't it.
it takes hoardes of well educated people just so we can guess at what the heck is going on. that can't be right.
Interesting name for a loan. This is truly secured debt. Uncle Sam follows you to the next world to collect if necessary.
Overall I approve of this wasteful and stupid tax regulation as it helps keep my bill rate up. I'm tired of moonlighting at the drive-through window.
An easy way to keep track of the sales would be to require that whoever does the closing to issue a 1099 to the seller. Then the seller would enter the sale on their taxes with the gross amount of the sale and zero taxable. (Like they do for Social Security)
The closers/title companies already issue 1099s for sales that don't qualify for the tax free status, so it wouldn't be a biggie for them. The sellers would only have to put a line item on their taxes.
The IRS has computers to compare the information on the 1099s to the sellers tax returns. If there are any questions they will send you a letter.
If there is no gain, however, the remaining loan is forgiven.
I'm sure no one has considered flipping a house for the same price to multiple first time buyers to take advantage of the tax credit. What reputable real estate professional would even contemplate such an arrangement? Straw buyers need to line up to the right.
It would probably have taken less than an hour of discussion within the IRS to rough out the basics of how this ought to track through. Apparently they haven't even done that simple amount of work.
A couple of those one dollar Detroit houses would fit the bill. Jeez, this is a charitable donation. Anyone who doesn't think they'll buy a house in the next few years, can buy the house through my company and sell it the next day and realize a thousand dollar profit from the IRS! I don't think $6500 is too much to charge for this valuable service.
Hmmm, Prop8.org, I've got a new business venture for youse guys.
The tax credit/loan is for 10% of the purchase price of a home up to a cap of $7,500 (for homes $75,000 or more). So, for a $1 house you would qualify for a 10 cent tax credit/loan.
It looks like the IRS could staff their new call centers with folks that have been laid off from the bank's call centers. Hey, there's a bright spot.
Well, I buy the place for a buck and broker the sales for 75K each time. Ooooops, I mean some one else brokers the sale.
As long as I'm the escrow company, all I'm out is the labor for filing sales down at the courthouse. Maybe I should charge $7000.
An easy way to keep track of the sales would be to require that whoever does the closing to issue a 1099 to the seller.
Yes, but Singletary's point is this: you sell home on 1/1/2009. You receive $6000 in proceeds.
You pay this to the IRS on April 15, 2010.
Sure, everybody's really good at socking that money into a savings account to cover that tax bill. That's why we don't have withholding laws in this country.
The "easy" way to do it would be for the IRS to put a lien on the property once the tax credit was claimed, so that the closing agent could just pay it off at closing out of seller proceeds and release the lien.
Easy for sellers, that is. Not easy for the IRS, so it won't happen.
Trust me the person who owes the money is mostly not gonna tell the title company when they close. And it least half of the time it will be because they didn't realize what was happening.
Yes, but Singletary's point is this: you sell home on 1/1/2009. You receive $6000 in proceeds.
Not if you use my company, EscrowBogusFee.org!
We charge you the $7000 profit and in six months pay you $6500 for sending back a postcard. Your profit has magically turned into regular income! Taxed at regular rates and the debt is forgiven.
I think there are laws against scamming the IRS, but if they can't shut down DAPs how are they going to catch this?
"Not easy for the IRS, so it won't happen."
I don't know... how many hours and how many dollars can the IRS spend to chase average joe - who doesn't have the $$$ anyway and never will? As you've pointed out, thus won't work on the honor system. That means either take the operation out of 'unofficial' hands or spend the rest of your life enforcing the rules on a herd of cats.
Keating Five - Wikipedia, the free encyclopedia
I don't know... how many hours and how many dollars can the IRS spend to chase average joe - who doesn't have the $$$ anyway and never will?
Now I've got coffee all over my keyboard.
Tax Evasion, IRS Priorities, and the EITC: Statement of Leonard E. Burman before the United States House of Representatives Committee on the Budget; On Waste, Fraud, and Abuse In Federal Mandatory Programs
The IRS loves to audit low-income filers who hosed up (or outright cheated) on the EITC to collect a few thousand bucks. It plays so well with the "poor people are sharks" constituency in Congress.
Rich people who use fancy shelters to hide millions? Not so much.
IRS has to wait for treasury to come out with some regs for them to follow.
IRS cannot forgive penalties unless the statute gives them authority to do so.
Of course, in 693 pages, there's no way the geniuses that wrote this thing could have laid this out?
Oh wait, they were the lobbyists for NAR, NAHB, FRE and FNM - they don;t give a crap about the IRS, onything else.
This is the worst Congress in history. Along with the worst president in history.
In general it isn't the IRS job to interpret statutes, their job is more or less to follow the instructions.
Congress writes the instructions, and then Treasury further explains the instructions through income tax regs.
This project will probably be hot-tracked at Treasury, which means the person assigned to the project is tasked with producing final regs within one year. Prior to that proposed regs will be issued, and Treasury will probably tell taxpayers that they can rely on the proposed regs without fear of penalty.
The $7500 tax credit is very, very simple to understand.
Just like the stimulus checks I make too much to qualify for handouts from the government.
Next topic?
This is a piece of cake compared to most of the tax law Congress sends to the IRS.
Tanta,
Re Chevy Chase class action. Not sure if you know, but TILA (truth in lending act)is a fee shifting statute. If the bank loses, bank pays attorney fees for plaintiff. That's enough to get attorneys to bring suits alleging misrepresentation. Recasts are a logical place to allege this, because who can clearly explain such an arcane consequence to J6P?
I'm not sure where the lawyers were when these complex loans were mass marketed. Possibly with the underwriters?
"You can't exactly make it difficult for people to know when and how much to pay you and then turn around and slap them with penalties and fines if they don't follow the rules"
YOU can't, but the IRS can. Have you read any tax code lately? I think you are being a bit naive and you may not have much experience with the IRS.
"and you won't get it unless you owe at least $7500 in taxes so it comes in on the back end (doesn't seem like it will help people qualify for a house).
Unless I am misunderestimating something here..."
I will look again, but I seem to recall it being a "refundable" credit, meaning the taxpayer will receive the $7500 whether they pay taxes that year or not.
Congress never sends a law to the IRS, it sends the law to the Department of the Treasury, and then it is Treasury's problem.
IRS is only culpable if it fails to follow Treasury's guidance, if Treasury issues none, then that is Treasury's bad.
It is frustrating for all involved when Congress enacts tax laws without rhyme or reason, as it has for decades, but then that is why they all have secure jobs.
Washington state's Muckleshoot Indian Tribe also has announced a mortgage relief program:
The address does not exist - Muckleshoot
[You can't exactly make it difficult for people to know when and how much to pay you and then turn around and slap them with penalties and fines if they don't follow the rules.]
So THAT'S how they're going to pay for this bill!
In some ways, the IRS is just as bad as the lousy servicers in handling these matters.
I'm sure the FHA loan portion of this bill will be a much, much smoother transition.
"This is the worst Congress in history. Along with the worst president in history."
Wait. Both will be far worse after the election.
I wonder if this tax credit isn't the reason they caved in on the DAPs. I mean, the tax credit will probably substitute the DAPs !!! (7.5k is more than 3% up to $225k, this probably isn't a coincidence)
The problem: People borrowing too much money to buy houses
Congress' solution: Make available more money to borrow to buy houses.
Why fuss over the administration of the process for getting the money back? The pols who enabled this law (Frank, Dodd, Schumer, Paulson etc) don't care if the money gets repaid. The clawback was always about appearances, just a little grease on the skids to get passage of the law over the finish line.
If house prices go up in the future, there will be some collection, even with a lousy administration system. Even partial collection will allow a case to be made that everyone's intentions were honest all along. It house prices go down, people will say that extraordinary and exigent circumstances forced forgiveness of most of the money.
Who in their right mind would want to deal with all of that crap in this housing market? And what is it exactly that was enacted? Is it a "loan" or a tax "credit"? In my understanding the two terms are mutually exclusive: a credit is something you don't have to pay back.
Hmmm... financing the future via fees and penalties on the "home buyer's credit?" Sure, why not - I bet the IRS would love to scalp some taxpayers over this one. Just wait and watch as it becomes really complicated to handle this thing and the fees start flying!
Tanta I can not agree w/ you more regarding Michelle. I read here articles in the WaPo avidly and have her color of money weekly set up for e-mail to me automatically. She actually had another piece in the post on the overly complex faux tax credit for home purchase. She highlights the pros & cons of taking it and at least for her test case comes to the conclusion not to take it. (Link at end)
Was the 2k credit passed back in the 70's during the Ford administration for home purchases just as complex? I say if your going to do it, just make it a straight tax credit for everyone, and lower the amount to make it affordable for the gov't.
Michelle Singletary - Think of Tax Credit as 15-Year Loan, And Rethink Whether You Need It