Give a Home for the Holidays

Tired of the offerings at the mall? Consider giving your children something grander, like the gift of a down payment to buy a home—or even a home itself. Uncle Sam encourages such generosity.
By: JUNE FLETCHER: WSJ.com
'Tis the season of giving. But if you're tired of the offerings at the mall, why not consider giving your children something grander, like the gift of a down payment to buy a home—or even a home itself?

Uncle Sam encourages such generosity, at least within limits (the IRS site has details). You and your spouse are each allowed to give gifts of $13,000 of money or property to as many people as you want, without triggering taxes for you or the recipients. If you give more than this amount to any one person, the excess counts, dollar for dollar, against your $1 million lifetime gift-tax exclusion ($2 million for married couples).

So if you and your spouse wanted to give $50,000 to your son for a down payment on a house, together you could gift him $26,000 this year, and $24,000 next year, tax-free.

This gift could help him qualify to buy a home before the federal government's tax credit stimulus expires early next summer. If the gift allows him to make a down payment of 20% or more of the sales price, he'd also avoid having to pay private mortgage insurance.

Or, if you are interested in selling your home to your child, you could gift some of the equity in the home rather than cash. Lenders usually will accept such a gift, but may require two appraisals to make sure that the home is really worth the sales price, and will ask you to sign an affidavit affirming that you are giving a gift and don't expect repayment.

Alternatively, you could finance your deposit-poor child's second mortgage. Then you and your spouse could each give $13,000 to your child, and an equivalent amount to the child's spouse, until the loan is paid off. Or you could transfer a percentage of interest in the property each year, up to $13,000 per person, until the property belongs to your child.

It may make sense to give more than the tax-free limit each year if you think you'll be subject to the estate tax, which kicks in for those worth more than $3.5 million when you die (or $7 million for married couples), according to San Diego certified public accountant Michael Fitzsimmons. That's because if you live more than three years after the date of the gift, any appreciation on the property, plus the original value of the gift, escapes estate taxes.

What if you want to gift a property that has decreased in value since you purchased it? Not so uncommon in these post-bubble times. If you own a rental property that has dropped in value, Mr. Fitzsimmons says that it's better to sell it and take a tax loss than to gift it, since neither a donor nor a recipient can deduct a tax loss on a decrease in value that happened before the date of the gift. Losses on primary and vacation homes are non-deductible.

And what if the mortgage on the property exceeds the home's current value? It's possible to give such a property away, but according to Jenkintown, Pa., certified public accountant Michael Solomon, most lenders wouldn't allow ownership to be transferred unless the recipient was in as good or better financial shape than the donor—and might also require that the donor remain on the mortgage. Meanwhile, if you're asked to take on a home that's underwater, remember that you can't return it if it doesn't fit your lifestyle. "Declining the gift does make sense," says Mr. Solomon.
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Sales of existing homes surge 10.1% in October

Even as builders pulled back their construction of new homes in October, buyers snapped up previously owned properties at the briskest pace in more than two years, a national organization said this morning.
By: Alejandro Lazo: latimes.com
The National Assn. of Realtors in Washington said sales of previously owned homes increased 10.1% to a seasonally adjusted annual rate of 6.1 million units in October from a downwardly revised pace of 5.54 million in September.
That is up 23.5% from the seasonally adjusted annual rate of 4.94 million units in October 2008. The last time the sales pace was that swift was in February 2007.

The buying - motivated by low interest rates, cheap housing and a credit for first-time buyers - pushed housing inventory at the end of October down 3.7% to 3.57 million existing homes available for sale, which represented a seven-month supply at the current sales pace, according to the Realtors group.

“The supply of homes on the market is now at the lowest level in over 2 1/2 years - we’re getting closer to a general balance between buyers and sellers,” Lawrence Yun, chief economist for the group, said in a statement.

The national median existing-home price for all housing types was $173,100 in October, down 7.1% from October 2008. Distressed properties accounted for 30% of sales in October.

In the West, which includes California, sales of previously owned homes increased 1.6% to an annual rate of 1.31 million in October and are 12% above a year ago. The median price in the West was $220,200, which is 14.7% below October 2008. It was the weakest performance for both sales and housing price improvement among the four national regions.

While a rush of first-time buyers to use the credit ahead of its initial Nov. 30 tax credit helped boost sales in October some economists are predicting a drop-off in sales in the winter months despite the credit’s extension and expansion earlier this month.

In a note to clients this morning Patrick Newport, U.S. economist for IHS Global Insight, predicted that given that the Mortgage Bankers Association's purchase Index - a measure of mortgage loan application volume - dropped to its lowest level in 12 years in its most recent release, a December sales plunge is likely.

“This surge may last one more month,” Newport wrote.
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New Tax Credits Benefit Both First Time Buyers and Current Homeowners

Closing deadline extended to June 30, repeat buyers offered up to $6,500
By: Annalisa Burgos: FrontDoor.com
First time homebuyers aren't the only ones who can claim a tax credit when they purchase a home. Now current homeowners can take advantage of the tax break too, if they qualify.

President Barack Obama signed into law a $24 billion economic stimulus bill on Friday, which includes an extension and expansion of the popular first time homebuyer tax credit. It was set to expire on Nov. 30. Prospective buyers now have until June 30, 2010, to close on their purchase and will need to submit documentation with their tax returns to claim the credit. The new program is estimated to cost $11 billion. Here are the details:

FIRST TIME BUYERS

Credit: Equal to 10 percent of the home's purchase price, up to $8,000

Who Qualifies:

    •Those who haven't owned property in the last three years

    •Those with income up to $225,000 for couples and $125,000 for individuals
     (credit phases out for people who make more than these amounts)

    •Must be at least 18 years of age to claim credit

    •Purchase price must be $800,000 or less

Deadlines:

    •Have until April 30, 2010, to enter into contract for a home purchase

    •Have until June 30, 2010, to close on the purchase

CURRENT HOMEOWNERS

Credit: Equal to 10 percent of the home's purchase price, up to $6,500

Who Qualifies:

    •Those who have owned and lived in their principal residence for at least five
     consecutive years during the past eight years

    •Those with income up to $225,000 for couples and $125,000 for individuals
     (credit phases out for people who make more than these amounts)

    •Must be at least 18 years of age to claim credit

    •Purchase price must be $800,000 or less

Deadlines:

    •Have until April 30, 2010, to enter into contract for a home purchase

    •Have until June 30, 2010, to close on the purchase

In addition, buyers have another year to take advantage of the higher loan limit for mortgages backed by the Federal Housing Administration, Fannie Mae or Freddie Mac - set at 125 percent of local median home sales prices, up to a maximum of $729,750 in high-cost housing markets. The limit in normal markets will remain $271,050 for FHA and $417,000 for Fannie Mae and Freddie Mac.

What this all means is that many more buyers qualify for a tax credit. So what are you waiting for? If you're even remotely considering buying a home, now's the time to do it. Don't let the first time buyers have all the fun.
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