BNGIowa

American Recovery and Reinvestment Act-Part 3 of 3

The American Recovery and Reinvestment Act of 2009 was chocked full of many tax relief items to individual taxpayers and small businesses.  While the specifics of the Act were subjected to many last minute changes in both the House and Senate, the outcome reflects Congress’ attempt to give targeted tax benefits to the middle and lower class Americans.  At the same time, it seeks to boost economic recovery by allowing small businesses certain tax breaks.  In the last of three newsletter articles, we will discuss some of the small business tax breaks enacted.

Bonus Depreciation

The 50% first-year bonus depreciation is extended through 2009.  The election to accelerate AMT and research credits in lieu of taking the bonus depreciation is also extended to qualifying property placed in service through 2009. Special rules apply to taxpayers who had already made this election for property placed in service in 2008.

Section 179 Expensing

The increase in the section 179 expensing amount to $250,000 and the increase in the phase-out threshold to $800,000 are both extended through 2009. The amounts had originally been temporarily increased by the Economic Stimulus Act of 2008.

Carryback of Small Business NOLs

Eligible small businesses are allowed to carry their 2008 net operating losses (NOLs) back for five years.  An eligible small business is one that has average gross receipts of $15 million or less (using gross receipts test from section 446(c)).

Small Business Estimated Taxes

Qualified individuals are allowed (for 2009 only) to make estimated tax payments that equal only 90% of their preceding tax year liability instead of 100%. To be a qualified individual, the taxpayer must have adjusted gross income of less than $500,000, and more than 50% of the individual’s gross income must come from a small business (a business with an average of fewer than 500 employees).

Work Opportunity Tax Credit

The act creates two new targeted groups for the work opportunity tax credit:  “disconnected youth” and unemployed veterans.  Employers who hire members of these groups during 2009 or 2010 may be eligible to take the credit.

This wraps up our final discussion of the American Recovery and Reinvestment Act of 2009 that discussed individual tax breaks and small business tax breaks.  For additional information, please talk with Brent McClure at Kiesling Associates.

What about this real estate market?

As a real estate professional, almost everyday I get asked “about this market,” which houses are selling and how they are being sold. It’s not the easiest question to answer but…in a marketplace where days on market are elevated and inventory levels are high, I recommend the following when considering selling a home:

• PRICE your home at the price at which you need to sell, eliminating “negotiating room” and increasing your likelihood of showings and offers. You’d rather turn down multiple offers than never receive any.
• PRICE your home to be the #1 or #2 most attractive option amongst its competition in the market, rather than at the market average for homes in your neighborhood.
• ENSURE that your property is immaculately presented. When the market affords buyers too many options you have to make sure that the showings you do receive are effective.
• EXPECT a good 6 month period to wrap up the sale of your home.
• INTERVIEW more than one REALTOR® for the job of selling your home. You must partner with an agent with MLS exposure, extensive online marketing coverage, aggressive and proactive marketing tactics, solid negotiating experience and training, and a clear and strategic marketing plan. The days of signs in yards selling homes are over!
• BE PREPARED for low offers and don’t be offended by them. Buyers are trying their luck in a marketplace where some homes ARE overpriced. If you price your home correctly this should not be an issue.

Home, Home on the Range

The Housing and Economic Recovery Act of 2008 signed by the President at the end of July gives first-time homebuyers a temporary refundable credit equal to 10 percent of the purchase price of a home, up to $7,500 ($3,750 for married individuals filing separately). The credit begins to phase out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return). The credit is effective for homes purchased on or after April 9, 2008 and before July 1, 2009.  Unlike other credits, however, the first-time homebuyer credit must be repaid in equal installments over 15 years, essentially making it an interest-free loan from the government for most qualifying  homeowners.

The new credit phases out for married couples filing jointly with modified AGI between $150,000 and $170,000 and for single taxpayers with modified AGI between $75,000 and $95,000.

A person is considered a “first-time homebuyer” if he or she (or spouse) had no ownership interest in a principal residence during the three-year period before the new home is purchased.

Unlike any other individual federal tax credit, taxpayers must repay the first-time homebuyer credit.  They will have 15 years to repay the credit, interest free.  Repayments start two years after the year in which the residence is purchased. Payments must be made in equal installments over those 15 years.

If a taxpayer sells or no longer uses the home as his or her principal residence before repaying the credit, the unpaid balance becomes due in the year in which the residence is sold or no longer used as the taxpayer’s principal residence. However, the amount of recaptured credit may not exceed the amount of gain from the sale of the residence to an unrelated person.

“Purchase” as used in the new law occurs when title closes.  In addition, homebuyers claiming the credit may not acquire the property from certain related persons and they must satisfy certain basis rules.

For more information about the First-Time Homebuyer Tax Credit and what steps you should implement to take advantage of the credit, contact Brent McClure at (515) 223-0159 or email at bmcclure@kiesling.com.

What are you doing with yours?

I was excited this week that the federal tax rebates were starting to hit everyone's bank account.  Even though my last two digits of my social security number would have gotten me a rebate this week, I owed the IRS this year (reluctanctly) and therefore did not direct deposit any refund.  So I will have to wait for the paper version sometime in May or June. 

I was watching our local news the other night, and it surprised me what the majority of people are planning on doing with their rebate. Over 58% of the respondents were going to pay bills with the money, 24% were going to save it, and only 14% were going to buy something fun.  I thought "typical, conservative Iowans."  My grandmother, who went through the great depression, came to mind. She would have saved it.

One of my good friends, on the other hand. has plans for his.  Seeing that he and his wife will be getting back $1,500 (they have one child), he has his eye on a flat-screen TV and a new driver.  Isn't that what we are SUPPOSED to do with the windfall?  It is an economic stimulus rebate, right? Isn't it considered "free money" to do what I want with?  Yeah, that's it!  I can buy whatever I want - expensive dinner, new electronics, summer vacation, etc.  Oh the possibilities!!  So what stores do I hit and in what order?  This is great! 

Wait a minute . . .

Then how come I feel like my only options are to pay off my credit card debt or save it? 

Thanks grandma.

What's the address for Mastercard?

How Could Any Mortgage Company Double Sales in 2007?

People questioned my sanity last summer when I chose to add mortgages - more specifically, the Home Ownership Accelerator - to the list of services available through Bridges Financial.  Seems like a particularly foolish time to be getting into the mortgage business.  Since then, whenever I mention mortgages to someone in conversation, they say something like "Boy!  You guys really have it rough right now.  Huh?".  I always try to explain that the Home Ownership Accelerator is a loan program designed for an entirely different type of borrower.  This is not another program for the borrowers who are costing taxpayers, investors, and people in the industry a lot of money and possibly even their jobs.  No, this loan is designed for responsible borrowers who have a fair amount of equity in their homes, good to great positive cash flow, and a demonstrated pattern of financial responsibility.  It's just a matter of time before this program becomes incredibly popular and I'm excited to be the first guy in Iowa talking about it.

Anyway, yesterday I came across this news story about how CMG Mortgage Bucks Mortgage Industry Collapse, Doubles Sales of New Home Ownership Accelerator^® Loan in 2007 .  The story has been featured on several U.S. and even a couple international news sites.  The story confirmed for me what I'd been thinking all along.  Any company that can double their sales and maintain strong underwriting profits (i.e. NO loans in default) is probably a pretty good partner for me to help my clients reach their financial destination.