Financial Frontlines®

Late(r) Breaking News:

Friday, June 12, 2009

The OSD tax person advised today that they have a “fix” that will make HAP benefits in the PCS category non-taxable.  The fix is under review by OMB; OSD hopes to attach the provision to a bill later this year.  So for now, HAP benefits are taxable, but if the proposed measure passes Congress, the PCS HAP category could become tax exempt .

June 11, 2009

We just found out some of the financial assistance for members under the Homeowners Assistance Program is taxable for some applicant categories. The PCS category is one of the taxable categories and we are determining whether the other categories are affected.

This is a surprise to us as we believed the benefit to be excluded as income as was HAP program payments prior to this recent expansion of the program.  See IRS Publication 3, page 4.

We are researching this issue and will report back as soon as we can get a source and a decision. In the meantime, if you apply for the HAP, ask about the tax status of your possible benefit. It could be that your $100,000 HAP payment could go down as income when you file your taxes for 2009.

NEWS FLASH…see my comments in the comments section for 13 Nov. Legislation was passed that gives military members a break on the 3-year live-in rule.

We have received a few calls and emails about this tax credit. The issue is how it effects a military member who can’t live in the house for three years to qualify for the credit.

This credit applies to homes bought in 2009. The credit can be for up to $8000. A “first-time” home buyer is someone who hasn’t owned a home as a primary residence for 3 years prior to the 2009 home purchase. Under the law, if you don’t live in the house for 3 years as your “primary residence” after using the credit, you pay back the full amount of the credit when you file annual income taxes for the year you moved out–even if you rent the place. The term “primary residence” is key. This is one of the provisions of the 2009 Stimulus bill that was passed in February and was under the tax code changes.

Members have stated the 3 year requirement shouldn’t apply to military members and there should be a military exemption. You need to look at the 3 year requirement as the price you pay to get the credit. It’s no different than getting the tax benefits of a retirement account but it costs you having to wait until you are 59 1/2 years old to earn the benefit.

MOAA does not see an opportunity to work on a military exemption to this law. Instead, our focus is on educating members about the risk assumed by using the credit. This is one more risk factor that must be considered by military members when buying a home. Buyer beware.

• The Housing Assistance Program (HAP) is to help minimize losses to members selling homes during the housing slump. DOD announced the guidance on the program. A priority order has been established to determine who gets assistance and how much.

Priority 1—wounded service members relocating to medical facilities and survivors whose service member died while deployed.

2—members affected by the BRAC.

Priority 1 and 2 members can be reimbursed at 95% of your loss OR government purchase of your home at 90% of prior fair market value (purchase price) for wounded and survivors while 75% for BRAC members.

3—PCS move members.

Priority 3 members can be reimbursed for their loss at 90% OR be eligible for government purchase at 75% of prior fair market value (purchase price).

More details are outlined on the Corps of Engineers site.

• Congress and the President’s budget proposals look to expand the concurrent receipt program know as Concurrent Retirement and Disability Pay (CRDP). Nothing is in concrete obviously until the bill is signed by the President and that is a ways off.

If things stay the same, the improvements affect Chapter 61 members only; medical retirements. All years of service are included; more and less than 20 years service. The CRDP would be phased in over the next several years based on your disability rating. 90-100% ratings get full CRDP starting Jan 2010. The next year 70-80%. Then 50-60%. Then 30-40%. And In 2014, 10-20%. To clarify, in 2013 and 2014, ratings of 10 to 40% will earn CRDP IF you were retired as a Chapter 61 member. Non-chapter 61 retirees with 40% or less ratings would not qualify for CRDP.

MOAA continues to fight for bills supporting CRDP for non-Chapter 61 members with less than 50% ratings. See our MOAA site for contacting your elected reps and seeking support on the CRDP bills.

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.

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.