Homebuyer Tax Credit

Have you got that credit yet? Many have, including many who did not deserve it. We're looking at the new homebuyer tax credit worth 10% of the purchase price of the house, with a limit of $8000. The house must become and remain your primary residence.

But first the good news. Yesterday the House voted to extend the time period required to close escrow by three months. Under the current law, you must enter a binding contract to purchase the house by April 30, 2010, and then close escrow by June 30, 2010. That's today! The bill in focus here would extend the deadline to close escrow until September 30, 2010. This will help the estimated 180,000 homebuyers who entered a contract by April 30, 2010, but are expected to miss today's deadline.

Why are they missing the June 30, 2010, deadline? In many cases it is because the sales are "short sales" where the current mortgage holder is being asked to accept less than the full amount as pay-off of the loan. (Think Las Vegas where short sales are about 1/3 of all house sales.) These simply take more time.

Of course the House passing the bill does not make it a law - remember your days in the Political Science class? (Why is that called a "science" anyway?) But a similar measure is already in action in the Senate and all the Hill forecasters talk as this will eventually become law.

Oh, and what about those who didn't deserve the credit but got it anyway? Like the roughly 1300 prison inmates who managed to grab more than $9 million? The bill includes provisions to aid in information sharing between the IRS and state prison authorities in an attempt to prevent further fraud.

Update: This was signed into law on July 2, 2010.

Tax Return Preparer Regulation

OK, so in June this is probably more interesting to those of us who work in this industry than the average taxpayer....

It has been an interesting week in learning more about the IRS changes for tax return preparation. For those a bit behind the curve, this past January the IRS announced that beginning on January 1, 2011, only those registered with the IRS could prepare a tax return for hire. And registration was not coming at a simple price.

There are two significant changes for tax return preparers beyond basic registration (which almost all legitimate preparers had already done) which will now require a fee. The first is the requirement to take a test and actually prove you know what you're doing. That will be a big win for the taxpayer.

The second is required CE or continuing education. This doesn't sound like too big of a deal with all of the fluff continuing education available today. "But wait - there's more!" Beginning in January the only education that will be accepted is that which has been carefully analyzed by the IRS and approved as suitable. And instructors must be vetted as well. More wins for the taxpayer.

The challenge will be whether or not the IRS can get up to speed on education review by then. It could become a bit of a temporary nightmare for those of us in the industry. Many of us take update courses in January, and we expect those to address the changes Congress seems to make every December. How will instructors digest the new bills, update their materials, and then get those approved by the IRS in such a very short window? That will be a problem for the tax practitioners....

But every taxpayer continues to win, win, win!

A new tax about to hit...

Many recently rejoiced at the enactment of the new health care bill. But of course these things must be paid for (and I do not think we really know how expensive this one is going to be).

One of the ways we (the citizens of this country) will pay for this benefit is a new 10% tax on clients using tanning salons. This new tax becomes effective on July 1, 2010. So as we fly through the last half of June, if you frequent those salons, you might want to schedule your visit before the end of the month. The price will be going up 10% on July 1.

California RDPs must Split Income

The IRS Chief Counsel has issued a formal advice memo to IRS examiners (and tax practitioners) concerning California Registered Domestic Partners (RDPs). Based on California's community property laws, RDPs must now each report half their community-property income. This includes earned income (wages, salary, self-employed) as well as investment income. This is effective January 1, 2007.

Taxpayers are allowed but not required to amend their returns for 2007-2009.

What this means to California RDPs is that while they must file as "single" on their federal tax return, they only report have their income. But they must also report half of their partner's income. RDPs will continue to file as married (married-filing-joint or married-filing-separate) on their California return.