Q. My friend and I are buying a house together as joint tenants. How does the $8000 homebuyer tax credit apply to us? Can each of us independently apply for the $8000 tax credit, and each claim the full $8000? Or will it be split $4000 each?
A. Here’s a simple breakdown of how the $8,000 tax credit works:
Buy any home this year and close by November 30, 2009, and the Internal Revenue Service will give you a tax credit of up to $8,000 on your 2009 taxes. For example, if you owe the IRS $6,000 for 2009 taxes and you’re eligible for the $8,000 credit, you would be refunded $2,000. If you owe nothing on your 2009 return, you would receive the entire amount of $8,000.
Some points to note:
A first-time buyer is defined as someone who has not owned a home during the last three years.
The home must be used as the primary residence.
The credit is based on 10 percent of the purchase price, not to exceed $8,000.
There may be a recapture clause if you sell your home within the first three years of ownership.
Income limits may reduce the amount of credit you receive.
Presuming you each fit within the guidelines listed above, your accountant can structure the amount of credit claimed based on Federal Guidelines and your personal situation. Elements to be considered are each party’s percentage of ownership, percentage of costs, etc. In order to be assured that you will not be audited in this regard, it is essential that you see a tax professional or tax attorney set up a formal agreement and structure your claim. The total credit received by both of you cannot exceed $8,000, regardless.
Remember that the $8,000 does not have to be repaid, and you are free to use the money for whatever you’d like. Financially savvy home owners may use it to pay down their mortgage principal or create a savings account for unexpected repairs.
For more information, check out http://www.federalhousingtaxcredit.com. There is an informative FAQ page. Remember, all of the above information is a general guideline, and is not meant to substitute for the advice of your accountant or tax professional.
Q. I rented a property that went into foreclosure. What happens to me now that the bank has taken over the home? What is “Cash for Keys”?
A. Cash for Keys, in California, is a lender optional program where a tenant, not the old owner, is given cash to vacate a property immediately, in lieu of instigating eviction. Keep in mind it is the loss mitigation company (or Realtor that the bank hires) that will offer this, not the bank. The amount depends on the area and state. In California, they offer between $1,000-$3,000 and they want you out within 7 days. Also, in California, if you decline the cash for keys program, you will then be served with a 60 day notice to vacate the property. After 60 days, then they can legally evict you. Eviction takes an additional 17-30 days.
Any monies owed you by the seller (pre-paid rent, security deposits) are the responsibility of the bank, and should be paid to you as part of the lender’s settlement. You should immediately, in writing, inform the Realtor, the loss mitigation company, and the bank themselves about those funds, and inquire as to how they will be settled out.
As I’ve said in many responses before, the risk in renting a pre-foreclosure home is you may face eminent eviction. Before you rent, make sure your Realtor does a complete CMA (comparative market analysis) along with a search of recorded liens. If the property is upside down (financed at an amount greater than its worth) you may risk a seller who defaults on his mortgage, leaving you with no home. Renters beware.
Q. Is it possible for a non-permitted bathroom addition to be added to the city record after it has been built?
A. Actually, I was just at the Department of Building and Safety on Friday (Los Angeles) and was discussing this very issue. It’s usually much more time consuming and costly to get a permit post-completion, than it would have been to get it in the first place. And the interesting point about this is, a first floor interior bathroom permit in the city of Los Angeles runs less than $2000. The message is: get your permits in advance!
But now to your situation.
There are several things to be concerned about:
1. What are the dates (commencement and completion) of the construction? This information gives you a good idea of what codes the addition was built under, in the very best of circumstances.
2. Was the work done by a licensed contractor?
3. Is there a set of plans to support the remodel, drawn by an architect or engineer? Does the completed work match the plans? (see #4 and 5 next)
4. Does the physical structure of the remodel (walls, windows, ceiling heights, etc) conform to current codes? Was anything necessary for code) removed, altered or diminished to create the new bath? (Such as a garage or a setback)
5. Do the underlying systems (plumbing, heating, electrical, drainage) conform to current codes?
Once you have answered the above, your next steps include some or all of the following:
1. You will need a current set of plans to be approved by your local building and safety. They will need to be drawn and submitted by an authority recognized by your building and safety department.
2. You’ll need to pay any necessary fees, local taxes, and fines in order to obtain your permit.
3. You will then have a series of inspections based on the scope of the work necessary to bring your project to current code.
4. You may need to open walls, remove fixtures, etc. to assure the inspector that the work done is to code.
The risk in accepting the property without a permit? If you, or anyone you sell the property to down the road, decide to add on or remodel, and the inspector discovers the un-permitted work, you may be asked to bring it to code as part of the scope of the work, before they will issue a certificate of occupancy on any future remodel.