Regina Corcoran's - "Pursuing the American Dream"
Sunday, September 20, 2009
Homeownership for kindergartners

By Regina Corcoran Special to The Citizen

So many became lost in space in the real estate buying frenzy leading up to 2005 and 2006. Buying real estate became an addiction.

Now what? The public greets real estate ownership with the same enthusiasm as the revival congregation when a prostitute walks through the door.

It's back to basics for all of us -- Real Estate 101. The most elementary fact is that we all sleep. We can choose the ground when we are tired, a boarding house, a rental home or a home of our own.

Everybody, conk yourself on the head one time. Now, let's reconsider why we buy a home.

Let's see if this sounds familiar: A home provides shelter. See above. Everyone has to sleep somewhere.

Pride of ownership. That nesting instinct. The desire to have a home of our own. It is our sanctuary at the end of the day.

It is a place I get to decorate, furnish and transform to please me. Thankfully, my cousin is a designer and saved me from having velvet Elvis pictures on my walls (not that there is anything wrong with that).

The U.S. Treasury Department encourages homeownership. We get tax benefits because we own a home. One of the best ways to "go green" is to buy a house before Dec. 1, 2009.

Examine Mr. and Mrs. Green's IRS tax planner. In 2008, they lived in a rented home. Between the two of them, they earned $65,000 and they have no dependents. Their taxable income, after the standard deduction and exemptions, was $46,300. They paid $6,114 in federal taxes.

In January 2009, they bought their first home. It cost $300,000 and they financed it with a Federal Housing Administration (FHA) loan at 5.25 percent. The Green's house payment is around $2,200 per month.

Business is tough and their employer didn't give them any pay increases. Still, because of the tax deductions from their new home, their taxable income is only $39,925.

They owe approximately $1,000 less in federal taxes due to homeownership. In effect, Uncle Sam gave them nearly an $85 per month, tax-free pay increase.

But, wait! Our buyers also are entitled to the 2009 first-time homebuyer credit of $8,000.

If they filed an extension for 2008 taxes, they can get the refund when they file that tax return. Or, they can file an amended 2008 return and get the money now. Or, they can get the refund when they file their 2009 tax return.

Maybe you haven't bought a home yet. If you buy one before Nov. 30, some types of loans (FHA, for example) allow you to get the money at closing. You can apply it to your down payment or closing costs.

The http://www.IRS.gov Web site says that the tax credit is "fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed."

The Greens, for example, owed approximately $5,100 in taxes for 2009. According to the IRS info sheet, they would get a $2,900 rebate when they file their 2009 tax returns.

Real estate is not a liquid asset, like savings accounts. You can't sell it just because you decide to. You may not be able to sell it when you need to most. You can't stick your fist through the walls and extract a wad of cash.

In case no one noticed, real estate values don't always go up. Did we forget how housing lost value in the Northeast in years past even while our local values were rising? How about Texas? California?

Still, those who are lucky enough to sell their home at a profit will enjoy another tax break. Under current tax laws, a married couple can get up to a $500,000 profit on their home and owe no taxes.

With all tax issues, seek the advice of a professional tax preparer, certified public accountant or tax attorney.

What do you think?

Regina E. Corcoran, SRA, is a Florida real estate broker, state-certified residential appraiser and residential contractor. She is president of AmeriRealty Corp. and vice president of AmeriMortgage Corp. She can be reached at ReginaECorcoran@cs.com. Corcoran writes her column exclusively for The Citizen. It appears every other Sunday.