Mike LeVan's Blog

"Home Buyer" and "Home Owner" Tax Credit

Thu, 19 Nov 2009 04:00:00 GMT

Let's clear up some confusion over the recent extension (and expansion) of the Home Buyer Tax Credit. The information below is taken from a publication from the National Association of Realtors and does a very good job outlining the new program.

What does the new law cover?

· Extends the First-Time Home Buyer Tax Credit of up to $8,000 to first-time home buyers until April 30, 2010.

· Expands the credit to grant up to $6,500 credit to current home owners purchasing a new or existing home between November 7, 2009 and April 30, 2010.

Who Qualifies for the Extended Credit?

· First-time home buyers who purchase homes between November 7, 2009 and April 30, 2010.

· Current home owners purchasing a home between November 7, 2009 and April 30, 2010, who have used the home being sold or vacated as a principal residence for five consecutive years within the last eight.

Which Properties Are Eligible?

The Extended Home Buyer Tax Credit may be applied to primary residences, including: single-family homes, condos, townhomes, and co-ops.

How is a Buyer's Credit Amount Determined?

Each home buyer’s tax credit is determined by two additional factors:

1. The price of the home.

2. The buyer's income.

Price
Under the Extended Home Buyer Tax Credit, credit may only be awarded on homes purchased for $800,000 or less.
Buyer Income
Under the Extended Home Buyer Tax Credit, which is effective on November 7, 2009, single buyers with incomes up to $125,000 and married couples with incomes up to $225,000—may receive the maximum tax credit.
These income limits have changed from the 2009 First-Time Home Buyer Tax Credit limits. If you or your client purchased a home between January 1, 2009 and November 6, 2009, please see 2009 First-Time Home Buyer Tax Credit.

If the Buyer(s)’ Income Exceeds These Limits, Can He/She Still Get a Credit?

Yes, some buyers may still be eligible for the credit.
The credit decreases for buyers who earn between $125,000 and $145,000 for single buyers and between $225,000 and $245,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income—over $145,000 for singles and over $245,000 for couples are not eligible for the credit.

Can a Buyer Still Qualify If He/She Closes After April 30, 2010?

Under the Extended Home Buyer Tax Credit, as long as a written binding contract to purchase is in effect on April 30, 2010, the purchaser will have until July 1, 2010 to close.

Will the Tax Credit Need to Be Repaid?

No. The buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during this three-year period, the full amount credit will be recouped on the sale.

If you have further questions, please give me a call. Mike LeVan 313-570-5995

Home sale numbers up dramatically in Grosse Pointe.

Mon, 26 Oct 2009 17:20:00 GMT

In the first 6 months of 2009 there were 219 single family homes sold in the five Grosse Pointes. In a typical year, approximately 60% of the annual sales occur in the first 6 months. In a surprising and welcome reversal, sales for the second half of 2009 have rebounded very nicely! Through Ocober 26 (only a little more than half way through the second half) we have already sold 256 homes. What changed? In my opinion, several things are working together.

First and foremost, the auto companies appear to be in a better position. Ford has show significantly improved numbers while GM and Chrysler filed and emerged from bankruptcy in a relatively smooth and efficient manner. Most auto company and supplier employees now feel much more secure than they did just a few months ago.

Second, the $8,000 Home Owner Stimulus Tax Credit has helped spur sales to first time buyers. This has then allowed the sellers of many of those smaller homes to purchase "move up" homes.

Third, prices have fallen far enough that many home buyers are seeing values that they never expected to see again. In many cases, we are selling homes at prices that they sold for back in the early 1990s.

Lastly, with all of the gloom and doom in the news for the last several years, even those potential homebuyers that have good jobs and secure incomes have been sitting on the sidelines, thus creating a fair amount of pent up demand. As the news improves, many of these buyers are finally getting back in the game.

The State of the Grosse Pointe Real Estate market

Tue, 29 Sep 2009 03:00:00 GMT

As of 9/24/09

One of the most frequent questions I get is about home prices. Have we reached the bottom? Quite simply...no (but we're geting pretty close.)

There are 563 single family homes listed for sale in the five Grosse Pointes. That is down from a high of 787 listing in the spring of 2008. While that 28% drop is a great step in the right direction, we still have a long way to go. "Normal" inventory levels for us would be in the 325-375 range. Until we can get the inventory down to this level it is unlikely that we will see prices bottom out. While prices are still drifting lower and may continue to do so for at least a year, it is my opinion that, in percentage terms, we are nearing the bottom. There is a certain amount of intrinsic value in these homes and they will only go so low. At some point, and I believe we are there, they become such a bargain that they will sell in spite of the economy and the market. This will work to the benefit of The Pointes, but at the expense of other areas in Metro Detroit.

Fixing Michigan's Pop-up Tax Problem

Mon, 09 Apr 2007 11:04:00 GMT

How should we fix the Pop-up Tax?

By Michael J. LeVan

G.P.B.R. – Government Affairs Chairman

M.A.R. – Public Policy Committee

There is no doubt that the lackluster Michigan economy has had a negative effect on home values in Michigan. But what about the Pop-up Tax, how has that impacted house prices?

Homes, like cars, are now purchased based upon monthly payment, not total price. When a buyer meets with a mortgage lender, they determine what the buyer can spend per month on housing expenses (that is principal, interest, taxes and insurance.) The total loan amount, and hence the purchase price that they can pay, is merely a by-product of the interest rate and the monthly payment that they can afford. Since real estate taxes are a component of that monthly payment, any increase in taxes reduces the amount available to pay interest and principle. This reduction in the amount available for the mortgage payment means a smaller loan amount, which in turn reduces the amount that a buyer can pay for a home. A $300 monthly tax increase reduces a buyer’s purchasing power by $50,000! That means buyers get less house for the money and sellers get less for their homes.

Where does all of that extra tax money go? From the Government’s point of view, the answer is nowhere. As a new homeowner, the Pop-up Tax will subtract thousands of extra dollars from your wallet, but won’t add a penny to the budgets of your city, county or state. With the small exception of a few extra dollars to the Michigan Education Fund, the rest of those dollars are “washed away.” In fact, your hefty tax increase actually acts as a subsidy to lower the increases of your neighbors’ property taxes.

While this was certainly not the intent of the legislature, it is a fact in scores of Michigan communities whose tax revenues are capped by the Headlee Amendment.

The Headlee Amendment requires that a Municipality’s total tax revenues from existing properties may only increase at a rate equal to the increase in the Consumer Price Index. Since under Proposal A, the Taxable Value of all existing homes, and hence each homes tax bill, is already adjusted for inflation in the same manner, the extra taxes collected on the homes that changed ownership create an excess. The Headlee Amendment requires the municipality to eliminate the excess created by the “Pop-up Tax” by rolling back their overall millage rate. Thus, the large extra taxes paid by a few new homeowners effectively create tiny rebates for all of the other property owners.

Since this was clearly not the intent of Proposal A, how do we fix this mess? The answer is surprisingly simple and significantly more fair than the existing system. It is also revenue neutral and maintains the current cap for those who chose not to move.

Because property values appreciate at different rates in different areas, each community has a different ratio of total taxable value (TXV) to total State Equalized Value (SEV). Rather than bring all sold properties up to the maximum ratio of 100% of SEV, the objective should be to bring everyone to the average ratio of all sales in that community that year. Thus at the time of sale, homes that have been taxed at below market levels will increase to the average and homes that have been taxed at higher levels will experience a decrease to the average. If you choose not to sell your home, you will continue to enjoy the benefits of an inflation rate cap on your Taxable Value.

This ratio is simple to calculate and would be available from your local assessor. The ratio of TXV to SEV in the Grosse Pointe Park last year, for example, was 70.1%. Thus, if you purchased a new house there last year, your Taxable Value would be set at 70.1% of the current SEV rather than 100% as is currently the case. This would result in an average tax savings of 30% to the new homebuyer with no decrease in funds available to the City, County or State.

This method is fair to both buyers and seller. It continues to protect existing homeowners. Over time, it brings everyone toward the middle, rather than polarizing tax bills at the high and low end. It does not discourage home sales. It will actually raise transfer tax revenues to the county and state by re-energizing the real estate market. And, lastly, it is revenue neutral.