IR-2009-27, March 18, 2009

WASHINGTON — As part of the Treasury Department’s consumer outreach effort and with the April 15 individual tax filing deadline approaching, the Internal Revenue Service today began a concerted effort to educate taxpayers about additional options at their disposal to claim the new $8,000 first-time homebuyer credit for 2009 home purchases. For people who recently purchased a home or are considering buying in the next few months, there are several different ways that they can get this tax credit even if they’ve already filed their tax return.

The Treasury Department encourages taxpayers to explore these options to maximize their credit and get their money back as fast as possible.

“The new credit can get money in the pockets of first-time homebuyers quickly,” said IRS Commissioner Doug Shulman. “For people who recently purchased a home or are considering buying in the next few months, there are several different ways that they can get this tax credit even if they’ve already filed their tax return.”

First-time homebuyers represent a significant portion of existing single-family home sales. The expansion in the first-time homebuyer credit will make it easier for first-time homebuyers to enter the housing market this year.

Under the American Recovery and Reinvestment Act of 2009, qualifying taxpayers who purchase a home before Dec. 1 receive up to $8,000, or $4,000 for married individuals filing separately. People can claim the credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year.

The filing options to consider are:

• File an extension. Taxpayers who haven’t yet filed their 2008 returns but are buying a home soon can request a six-month extension to October 15.  This step would be faster than waiting until next year to claim it on the 2009 tax return.  Even with an extension, taxpayers could still file electronically, receiving their refund in as few as 10 days with direct deposit.
• File now, amend later. Taxpayers due a sizable refund for their 2008 tax return but who also are considering buying a house in the next few months can file their return now and claim the credit later.  Taxpayers would file their 2008 tax forms as usual, then follow up with an amended return later this year to claim the homebuyer credit.
• Amend the 2008 tax return. Taxpayers buying a home in the near future who have already filed their 2008 tax return can consider filing an amended tax return. The amended tax return will allow them to claim the homebuyer credit on the 2008 return without waiting until next year to claim it on the 2009 return.
• Claim the credit in 2009 rather than 2008. For some taxpayers, it may make more financial sense to wait and claim the homebuyer credit next year when they file the 2009 tax return rather than claiming it now on the 2008 tax return. This could benefit taxpayers who might qualify for a higher credit on the 2009 tax return. This could include people who have less income in 2009 than 2008 because of factors such as a job loss or drop in investment income.

The IRS reminds taxpayers the amount of the credit begins to phase out for taxpayers whose modified adjusted gross income is more than $75,000, or $150,000 for joint filers. Taxpayers can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately.

IRS.gov provides more information, including guidance for people who bought their first homes in 2008. To learn more about the overall implementation of the Recovery Act, visit www.Recovery.gov.

How does the Code of Ethics affect everyday real estate practices?

If a REALTOR® represents you, whether you are buying or selling a home, you can count on that REALTOR® to:

1. Be honest with all parties in the transaction – not just with you, as his or her client, but also with the other real estate practitioner and his or her clients.
For example, if REALTORS® represent a buyer with a spotty credit history, they can’t be dishonest with sellers about this fact. At the same time, REALTORS® can help their buyer clients collect and assemble information, such as credit reports and audited tax returns, to demonstrate that the buyer has addressed the problem and improved their situation.

2. Put your interests ahead of his or her own, at all times.
A REALTOR® makes every effort to understand the housing needs of his or her client, thoroughly researches available inventory, and shares all relevant information with the buyer so that he or she can make an informed decision. This service is provided regardless of the compensation available.

3. Disclose all pertinent facts regarding the property and the transaction to both buyer and seller.
If a REALTOR® believes information provided by a seller is questionable, the REALTOR® is obligated to investigate. REALTORS® should recommend that buyers consult their own experts, such as home inspectors, to address concerns. For example, if a home seller asks his or her REALTOR® to conceal the fact that the roof leaks, the REALTOR® cannot comply; if the seller insists, the REALTOR® should end the business relationship with that seller.

4. Be truthful in all communications with the public.
When REALTORS® distribute newsletters, create Web sites, or place advertisements, they must be careful not to represent other real estate professionals’ work product as their own. If recently sold or listed properties in the community are publicized, it must be clear whether the REALTOR® was actually involved in the transaction, or whether that data came from the local multiple listing service or other source. This ensures that the public understands the REALTOR®’s experience and can make an informed decision when choosing real estate representation.

Washington, March 18, 2009

The following is a statement by National Association of Realtors® President Charles McMillan:

“The National Association of Realtors® applauds the Federal Reserve announcement today that it would purchase an additional $750 billion in Fannie Mae and Freddie Mac mortgage-backed securities and up to $300 billion in longer term Treasury securities. This is great news for American home buyers and homeowners because mortgage interest rates will continue to remain at historic lows.

“NAR has been advocating since last fall that the Fed be more active in buying mortgage-backed securities. We are excited that the Fed acted on this provision of the stimulus plan that we offered to the government in November.

“Greater numbers of home buyers will be able to purchase a home, and homeowners facing challenges will be able to refinance into better terms. We already are experiencing a great improvement in housing affordability due to historically low interest rates, and the Fed’s move will push affordability conditions to the best levels in 40 years. In addition, continued low rates will lessen foreclosure pressure and help stabilize home prices sooner, as more American buy homes and draw down inventory.”

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.

The recovery rebate credit is a one-time benefit for people who didn’t receive the full economic stimulus payment last year and whose circumstances may have changed, making them eligible now for some or all of the unpaid portion.

Generally, a credit adds to the amount of your tax refund or lowers the amount of taxes owed. Therefore, the amount you receive for the recovery rebate credit will be included as part of your refund, as shown on your tax return.

You May Be Eligible

People who fall into the categories described below may be eligible for the recovery rebate credit this year:

*
Individuals who did not receive an economic stimulus payment.

* Those who received less than the maximum economic stimulus payment in 2008 — $600 per taxpayer; $1,200 if married filing jointly — because their qualifying or gross income was either too high or too low.

* Families who gained an additional qualifying child in 2008.

* Individuals who could be claimed as a dependent on someone else’s tax return in 2007, but who cannot be claimed as a dependent on another return in 2008.

* Individuals who did not have a valid Social Security number in 2007 but who did receive one in 2008.

How to Get the Recovery Rebate Credit

You need to claim the recovery rebate credit on Form 1040, 1040A or 1040EZ. The instructions for these forms will show you which lines to use. Unlike the economic stimulus payment, the recovery rebate credit will be included in your tax refund for 2008 and will not be issued as a separate payment.
The IRS Will Figure the Credit for You in Most Cases

You can let the IRS figure the credit when you file your 2008 Form 1040, 1040A or 1040EZ. If you’re filing on paper, simply follow the line-by-line instructions to choose this option. If you’re filing electronically, the software will figure the credit for you.

Or You Can Figure It Yourself

Likewise, you can figure and claim the recovery rebate credit on your 2008 Form 1040, 1040A or 1040EZ. Two interactive online tools will be available to help you with the calculation, the Recovery Rebate Credit Calculator and How Much Was My 2008 Stimulus Payment?

The Recovery Rebate Credit Calculator will help you figure the amount you should claim on your 2008 tax return. The worksheet in the Form 1040 instruction booklet can also help you figure your credit by hand. To use the Recovery Rebate Credit Calculator or complete the worksheet, you’ll need the amount of your 2008 economic stimulus payment, if any. This amount was provided on Notice 1378, Economic Stimulus Payment Notice, sent by the IRS to taxpayers who received a payment.

You need to know the amount of your 2008 economic stimulus payment to determine if you are eligible for the Recovery Rebate Credit. You will need the total amount of your stimulus payment to complete the Recovery Rebate Credit worksheet that is in the Form 1040, 1040A and 1040EZ instruction booklets. Even if your payment was reduced to satisfy other debts, as would be stated on your Notice 1378, you still need to include the total. If you received more than one payment — and more than one Notice 1378 — enter the total of all payments you received.

If you don’t have Notice 1378, you can use How Much Was My 2008 Stimulus Payment? to look up the amount you received.

For more information visit http://www.irs.gov/newsroom/article/0,,id=177937,00.html

What is the fundamental issue?
Until the recent round of abusive lending and housing market turmoil, the most effective remedy available to homeowners facing foreclosure to stay the foreclosure was to file for bankruptcy under Chapter 13 of the Bankruptcy Code. Today, however, an increasingly significant percentage of borrowers filing under Chapter 13 for bankruptcy are losing their homes to foreclosure because they can’t keep up with the financial demands of problematic mortgages.

In order to assist those saddled with abusive loans and minimize the turmoil created for families, neighborhoods, communities and housing markets by abusive lending practices, bankruptcy reform measures are being discussed to amend the bankruptcy code to allow mortgages on primary residences to bifurcated into a secured and unsecured and mortgage interest rates and terms to be modified by bankruptcy judges.

I’m a Realtor®. What does this mean to my business?
Bankruptcy reform could impact REALTORS® in a number of ways. Proposed reforms would provide homeowners and REALTORS® with additional leverage to negotiate short sales with mortgage lenders. In addition, the proposed changes could give REALTORS® attempting to help homeowners keep their houses another tool to negotiate a loan modification and avoid foreclosure.

Conversely, the housing market would be impacted by higher interest rates and potentially less liquidity in the secondary mortgage market, making it tougher and more expensive for buyers to secure a mortgage if lender confidence is shaken by the potential for a future involuntary loan restructuring (e.g. rate reduction, cramdown, term extension, etc.) in the course of a borrowers bankruptcy proceeding.

NAR Policy:
While NAR does have policy from the early 1990’s that opposes cram-downs, NAR currently has no policy applicable to the current proposed reform measures.

When this anti-cram-down policy was adopted, loans were predominantly fixed rate mortgages; 2/28s and exploding ARMs did not materialize until early 2004. The housing market and types of mortgages products having evolved dramatically since the last time this issue was considered by REALTORS®.

Legislative/Regulatory Status/Outlook:
On September 20, 2007, Representatives Brad Miller (D-NC) and Linda Sanchez (D-CA) introduced H.R. 3609, the “Emergency Home Ownership and Mortgage Equity Protection Act of 2007.” H.R. 3609 amends the Bankruptcy Code to remove the anti-modification provision for mortgages secured by principal residences and permits modified home loans to be repaid beyond the term of the Chapter 13 plan. Representative Steve Chabot (R-OH) has also introduced a bankruptcy reform measure, H.R. 3778, “Home Owner’s Mortgage and Equity Savings Act” or “HOMES Act,” which allows modifications on a debtor’s principal residence while placing limits on the types of loans. H.R. 3778 would also sunset after seven years.

On December 12, 2007, the House Judiciary Committee held its markup of H. R. 3609. Many amendments were offered, but none passed. Some issues that might be re-addressed as the bill moves towards full House consideration are putting a cap on the amount of principal allowed to be crammed down and making sure that the changes are not used as a mortgage tool and only as a last resort.

In the Senate, two different bankruptcy bills have been introduced. On October 3, 2007, Senator Durbin (D-IL) introduced S. 2136. S. 2136 is similar to H.R. 3609 and would amend the Bankruptcy Code and allow judges to modify loans. Also on October 3, 2007, Senator Specter (R-PA) introduced S. 2133, which amends the Bankruptcy Code and allow mortgages to be included in Chapter 13 filings, but restricts a judge’s ability to modify the principal of the mortgage. However, S. 2133 would permit a bankruptcy judge to stop or delay an interest rate increase, roll back interest rates, and eliminate early prepayment or prepayment penalties. No date has been set yet for the Senate Judiciary Committee to mark-up either bill.

The chance of any of these mortgage bankruptcy reform bills being enacted as introduced is very slim.