Financial Frontlines®

The IRS extended the First-Time Homebuyers Credit from last year and improved upon it. For homes purchased under the 2008 program, the credit was worth up to $7500 and it was actually an interest-free loan. The $7500 had to be paid back over the next 15 years.

For homes purchased under the 2009 program, the credit is worth up to $8000. Unlike last year, this credit does not require repayment unless the home ceases to be your main home within 36 months of purchase. The credit amount varies. You can claim the smaller amount of 10% of the purchase price OR $8000.

The program applies to:

• First-time home buyers. “First-time” home buyers are people who did not own any other main home during a 3-year period prior to your home purchase.
• Home purchases in the U.S. between April 9, 2008 and before December 1, 2009.

A “main home” is one where you live most of the time. It can include single family homes, townhouses, condos, houseboats, house trailer, or other types of residences.

The credit does have restrictions. The credit is phased out with income on line 38 of your Form 1040 of $95,000 for single filers or for married filing jointly, $170,000. See the IRS web site for more information and disqualifying rules; http://www.irs.gov/newsroom/article/0,,id=204671,00.html.

Wow, this program has caused quite a state of confusion and for good reason.

The tax withholding reduction (up to $400 for individuals or up to $800 for couples) applies to “earned income”–people still earning a paycheck with an employer.  They will have their payroll taxes reduced and at the end of the year receive a tax credit for the reduced amount.  So you pay fewer taxes now (more pocket money) and won’t owe the tax later.  Each wage earner in the family may have this reduction applied to them by their employer.  However, the dual income family can apply only one tax credit at the end of the year for up to $800 per joint tax filing. 

Retiree checks are not eligible for this program.  However, retiree checks use the same tax withholding tables as paychecks.  So our retiree checks will reflect the tax withholding decrease.  That means you either increase your withholding to compensate for the withholding reduction or be ready to possibly owe more taxes when you file your 2009 income tax returns.

If you also receive Social Security and/or VA Compensation, you will receive a one-time lump sum amount of $250 in one of your monthly checks in the next few months.  If you also work and receive either VA or SS checks, that means you receive the payroll tax withholding reduction AND the $250 lump-sum HOWEVER the $250 will be subtracted from your payroll tax withholding credit. 

IRS site: http://www.irs.gov/newsroom/article/0,,id=204447,00.html

DFAS My Pay site for tax withholding changes: https://mypay.dfas.mil/mypay.aspx

Hope this helps.

Remember when it was a big deal to have a credit card?  You had to apply and prove you were a good credit risk.  You waited like a kid before Christmas day until you heard whether you were approved.  Then that day came when in the mail your Sears or Montgomery Wards or Phillips 66 card arrived.  Holy cow Batman!  With a credit card came awesome responsibility.  Well credit is reverting back to the norm.  The days of easy credit are gone.  Protecting and building your credit score has become a big deal again.

Ways to protect and build your credit scores include:

• Paying your bills before they are due.
• Paying off balances each month.
• Managing the amount of credit you have open at any one time and knowing your balances.
• A high percentage of credit used to credit available–not so good.
• A low percentage of credit used to credit available–good.
• Get a copy of your credit report to see what’s on it.  You may be surprised to find open accounts you have long forgot about.
• Don’t use credit just because you have additional credit available.
• Know your current credit score so you know where you are.
• Don’t share credit with poor credit risk people–’love’ doesn’t trump a person’s bad credit record and chances are they won’t change.
• Get help if you have credit problems.  Check out http://nfcc.org/ or call your Better Business Bureau.

Now if only that 25¢ gas would come back.

The Fair Credit Reporting Act allows military members away from their normal duty station to place an “active duty alert” on their credit report.  This program is designed to minimize the risk of identity theft while you are deployed.  It works by forcing a business or credit agency to verify your identity before any credit can be issued in your name.  The alert is good for one year and can be cut short or lengthened if need be.  For details on the program and how to establish your alert, check out this Federal Trade Commission web site:  http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt147.shtm. 

Here’s a bit more info on the Homeowners Assistance Program. More to follow:

Q: Where can I apply for the military’s Homeowner Assistance Program (HAP) referenced in the American Economic Recovery Act (Stimulus Bill)?

A: The Homeowner Assistance Program or HAP is managed by the US Army Corps of Engineers. They are awaiting guidance from the Defense Department before the Army Corps of Engineers can start processing applications; however, they are accepting applications. Military members can find information on the application process on the Army Corps of Engineers website at: http://hap.usace.army.mil/.

Q: What are the benefits of the HAP?

A: Members can choose from one of these payments:

• The difference between 95% of the prior Fair Market Value and Fair Market Value at the time of sale, or,
• An amount not more than 90% of your home’s prior Fair Market Value or the amount of the outstanding mortgage.

Q: What is “prior Fair Market Value” and “Fair Market Value”?

A: We have to wait to see the DoD regulations to be sure how they define prior and current fair market values under the various categories of eligibility.

Q: When will my application be processed?

A: DOD is in the process of establishing policy guidance to expand the HAP. Potential applicants should download and complete the application and then mail it to appropriate HAP districts. But the Corps of Engineers won’t taken any action on the applications until DoD guidance is published.

Q: What are the eligibility criteria?

A: There are three major categories of eligible personnel:

• military personnel who have purchased a home before July 1, 2006 and have PCSed or have PCS orders;
• wounded warriors who have been retired for disability and relocated; and
• surviving spouses of service members killed in the line of duty during a deployment or died from a wound, injury, or illness incurred in the line of duty during such a deployment on or after 11 September 2001.

More specific criteria can be found at http://hap.usace.army.mil/.

Q: I’m scheduled to move this summer. Should I sell my home? Will I qualify?

A: Any answer would be pure speculation without specific guidance from DoD. We recommend you contact the appropriate HAP field office at http://hap.usace.army.mil/Contact.html to discuss your unique situation.