Here in Washington state, we are accustomed to paying an excise/state sales tax when we purchase goods. Interestingly enough, when it comes to the most significant acquisition most of us will make, the seller, rather than the purchaser, covers the taxes.

Currently, the base Washington state excise tax rate is 1.28%, with each county adding on their own percentage for a total that fluctuates somewhat by area. Snohomish and King County excise taxes (in most areas) are at a .50 rate,  bringing the grand total to 1.78% of the purchase price.

An obvious question if you’re a distressed home seller would be, “who exactly pays this tax in the event of a short sale?”  In most cases, the burden falls to the bank that is carrying the mortgage to ‘eat’ that cost, along with the other costs associated with selling a home.

For a brief time at the beginning of 2009, some sellers were required to pay excise tax on the amount of the shortage (the difference between what they owed, and what they were able to sell their property for in a declining market). Sellers in this category may now be eligible for a refund of excise taxes. Use the following link to download the required excise tax refund application form.

Should you have detailed questions about Real Estate Excise Tax (aka REET) or short sales, we will happily refer you to a CPA and/or attorney who can further assist you. Give us a ring, or send us an email for a referral list to professionals who specialize in these issues.

Tags: excise tax, seller, short sale

By now you’ve probably heard: The $8,000 Tax Credit has been extended!

And you’re thinking, “I’ve been wanting to buy a home… maybe there’s something to this procrastination thing, after all.” In this case, you’d be right; The last go-round provided up to $8,000 to homebuyers who had not owned a home in the past 3 years, and whose income was $75,000 for single taxpayers and $150,000 for married taxpayers filing joint returns.

In recognition of your patience and wisdom, you are now eligible for the Sweetened Deal: For home purchases occurring after November 6, 2009, the new income limits are $125,000 for single taxpayers and $225,000 for married couples filing jointly.

Be prepared to prove it!

Due to the very real potential for fraud, you will be required to prove that you have not owned a home in the last 3 years, however, the credit can be allocated to the person who has not owned previously, in cases where parents are assisting with a purchase, or where one member of an unmarried couple has previously owned.

Saving for a downpayment?

Another element of the new version is that it allows prospective home buyers who believe they qualify for the tax credit to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.

Keep the Cabin!

Also of note is that ownership of a vacation home, or rental property that was not used as a primary residence, does not disqualify a buyer as a first-time home buyer.

Upgrade your digs.

The most significant change to the ‘bonus round’ homebuyer tax credit is the addition of a ‘move-up buyer’ credit. This provision allows for a tax credit of up to $6,500 to homebuyers who have lived in the same residence for 5 of the last 8 years, on purchases up to $800,000.

You’re Not from Around Here?

Anyone who is not a nonresident alien (as defined by the IRS) and who has owned and resided in a principal residence in the United States for at least five consecutive years of the eight years prior to the purchase date can claim the tax credit if they meet the income limits.

Get Educated.

The income limits for move-up buyers are the same as for first-timers, and the allowable credit amount is graduated at the same rate, so please speak with your accountant for details on how your specific situation may be affected.

Some Restrictions Apply.

In order to qualify, all purchases- both first-time and move-up, must be completed on or before April 30, 2010 (or purchased by June 30, 2010 with a binding sales contract signed by April 30, 2010).

The Fine Print.

If you’re considering purchasing a home, and want to take a look at the tax credit qualification and application process, here’s a link to download the IRS Form 5405

Tags: buyer, seller, tax credit, thoughts