Last week, President Barack Obama signed a law that extends through next spring a temporary tax credit of up to $8,000 for some first-time home buyers, which was due to expire Nov. 30. The law also adds a new tax credit of up to $6,500 for certain repeat home buyers. The package, which the government estimates will cost a total of $11 billion, is intended to help spur housing sales, a critical part of the economy.

WSJ tax columnist Laura Saunders answers questions from readers about looking ahead to tax time.

Q: What has stayed the same in the new law?

1) First-time home buyers still get a credit of as much as 10% of the purchase price, up to a maximum $8,000. “First-time” means people, including both partners of a married couple, who haven’t owned a principal residence for three years before the purchase.

2) All taxpayers who claim a credit must use the home as a principal residence for the next three consecutive years.

3) The credits offer dollar-for-dollar reductions of tax and are refundable. This means that a taxpayer who doesn’t pay enough tax to offset the credit can get a refund. For example, if you qualify for an $8,000 credit but only owe $5,000 in tax, you could receive a $3,000 check from the Internal Revenue Service.

4) Under the new law, as under the old, 2009 home buyers may claim the credit on either their 2008 or 2009 returns, and 2010 buyers may claim the credit on either their 2009 or 2010 returns.

5) Taxpayers do not qualify for a credit if they buy from a lineal ancestor or descendent, including parents or grandparents and children or grandchildren.

Q: What has changed?

Several important features took effect as of Nov. 6:

1) To take advantage of the tax credits, a buyer must have a contract in place before May 1, 2010, and the deal must close before July 1, 2010. No further extension is expected.

2) The price of the house is now capped. For purchases made after Nov. 6, no credit is available for any home costing more than $800,000.

3) There is now a tax credit for repeat buyers as well as for first-time buyers. Taxpayers who have lived in one residence for five consecutive years of the past eight can now qualify for a tax credit of as much as 10% of the purchase price, up to a maximum $6,500, of a new principal residence. The new home does not have to cost more than the old one.

4) Income limits for people who qualify for a tax credit are far more generous than under the previous law. For single filers, the credits now phase out between $125,000 and $145,000 of modified adjusted gross income; for married couples, the range is $225,000 to $245,000. For most people, modified adjusted gross income will be the same as adjusted gross income.

5) The new law contains anti-abuse measures designed to stem fraud, which became a problem with the previous home-buyer tax credit. Most buyers must be 18 or older, and no taxpayer may take a credit if he or she is claimed as a dependent on someone else’s return. Taxpayers taking the credit will also have to furnish proof of purchase. According to Robert Dietz of the National Association of Home Builders, this will usually be a HUD-1 form.

6) People taking the tax credit, as under the old law, aren’t allowed to buy a home from a lineal ancestor or descendent. The new law, applying to purchases made after Nov. 6, also says a person may not take a credit if the home is purchased from a spouse or the spouse’s lineal relatives.

Q: If I bought a house last spring or summer, can I get a tax credit?

You qualify if you are a first-time buyer and meet the other requirements, but not if you are a repeat buyer. The new credit for repeat buyers applies only to purchases made after Nov. 6.

Q: What is the definition of “principal residence”?

If you own more than one home, your principal residence is usually the one where you spend most of your time. In determining residence the IRS may also consider where your family lives and your mailing address for bills and correspondence, among other factors.

Q: Can a principal residence be something besides a conventional house?

Yes. A principal residence may also be a condominium, co-op apartment, attached or semi-attached townhouse, or even—if it has eating, sleeping and toilet facilities—a boat, motor home or trailer. Manufactured homes qualify in some states.

Q: Does the person who claims the credit have to use the home as a principal residence?

Yes.

Q: If I buy a new home and live in it, do I also have to sell my old one in order to take advantage of the credit?

This is unclear. The law appears to allow repeat buyers to retain their old home, for which no tax credit was given, while claiming a credit for the new one. What is clear is that if you buy a new home using the credit, you must use it as your principal residence.

Q: How may the credits be allocated among two or more unmarried buyers?

This also is unclear. But if the IRS adopts the rules that applied to the previous tax credit, which are detailed in IRS Notice 2009-12, there is room for planning. The notice says that taxpayers may use “any reasonable manner” to allocate the credit. It even provides an example in which two unmarried buyers allocate the credit to the lower earner in order to qualify for it.

Q: I need the credit refund to help make the down payment. What can I do?

There’s no rushing the IRS. But one option is to adjust your current withholding from your paychecks to reflect the fact that you will be taking the credit later. But be careful: If you don’t make the purchase, then you may owe interest and penalties. Consult a tax adviser.

Q: Is it possible to qualify for a credit if I am building a home on a lot I already own?

Yes, according to the National Association of Home Builders. The purchase date is usually considered to be the date of first occupancy, so you would need to move in before July 1, 2010.

Q: May I take a credit if I am building a large addition to my home?

No; these credits apply only to the purchase of a home.

Q: Are there special rules for the military?

Yes. In general, members of the military and foreignservice and intelligence communities who are serving overseas on “official extended duty” for at least 90 days during 2009 and the first four months of 2010 have an extra year to take advantage of these credits. Consult a tax adviser who specializes in this area.

Q: Where can I get more information?

Go to federalhousingtaxcredit.com, a Web site sponsored by the National Association of Home Builders. You can also look for links from the IRS’s home page, www.irs.gov, or search for Homebuyer Credit. Another option is to consult a professional tax adviser.

Check it!

Residents of El Dorado County can receive a free radon test kit until supplies run out.

The Tahoe Division of the El Dorado County Environmental Management Department has several hundred test kits available, said Virginia Huber, Tahoe Division Manager.

The kits can be picked up from 8 a.m. to noon and from 1 to 5 p.m. weekdays at 3368 Lake Tahoe Blvd. Suite 303.

“We recommend everyone in the South Lake Tahoe area test their home for radon,” Huber said.

Radon is an odorless, colorless, radioactive case that arises from the decay of naturally occurring uranium and thorium in soil. The gas is linked to 21,000 lung cancer deaths a year, second only to cigarette smoking, according to the EPA.

A report from the California Geological Survey in June 2009 estimated that 23,400 people in the Lake Tahoe area live in buildings where radon is likely to equal or exceed the U.S. Environmental Protection Agency’s recommended action level of 4 picocuries per liter.

The report was based on geological data, as well as results from a survey of 443 homes in South Lake Tahoe between 2006 and 2007.

According to the survey, about 40 percent of homes in the Lake Tahoe area are at or above the EPA’s recommended action level, while approximately 55 percent of homes in the El Dorado County portion of the basin who participated in the survey are at or above the recommended action level.

Winter is a good time to test a home for radon, Huber said.

“It’s the best time to test because your house is closed up,” she said.

Active weather is on track to move into the region beginning Sunday & continuing into the following weekend. Numerous waves of moderate to heavy precipitation will come in during the week with breaks of 6-18 hours between periods of more intense rain & snow.

Periods of moderate to heavy precipitation are expected Sunday night into Tuesday. At this time, Wednesday & Thursday look to be the most problematic days. The combination of blowing snow, heavy snowfall & strong winds would likely create blizzard/white out conditions & make travel nearly impossible.

Preliminary snowfall forecast:

Lake Tahoe Region above 7000 feet: 5-7 feet
Lake Tahoe (South Lake/Truckee): 2.5-4 feet

Short Sales and Deed in Lieu of Foreclosure (commonly referred to as Cash for Keys) have received major attention on the Hill.  In an effort to curtail foreclosures, the Feds have introduced HAFA.  HAFA stands for Home Affordable Foreclosure Alternatives and it goes into effect in April of 2010.  This is a big push to get banks to approve and move expeditiously on allowing homeowners to short sale their homes or possibly turn in their keys WITHOUT deficiency recourse.  Up until now, foreclosures have outnumbered short sales and loan modifications 20:1.  Banks have been very non-responsive to short sales…or they take “a month of Sundays” to even respond to an inquiry.  Homeowners, buyers and agents may see some relief around the horizon.  With HAFA, banks will be required to streamline and simplify the process of short sales or DILs.

Here are the highlights:

• Allows homeowner to receive preapproved short sale terms before property listing
• Prohibits servicer from reducing real estate commissions as a condition of approving the short sale. Great news for the agents!
• Homeowners are fully released from future liability for the debt…No more deficiency judgments!
• Servicer must respond within 30 days of the homeowner requesting a short sale. Yes…an established time frame!
• $1,500 relocation incentive to the homeowner
• The bank MUST respond within 10 business days of receiving an executed purchase agreement, its decision on approval or denial.  You read it right…TEN DAYS!
• The servicer (bank) may not charge the homeowner administrative processing fees…the servicer must pay all out of pocket expenses

Saturday

Dec 12, 2009

Hi 33°f / 20°f (base/top)
Lo 24°f / 15°f (base/top)

Sky Condition:
Cloudy and cold with heavy snow morning through afternoon. Snow continues but lighter in the evening (colder air) and overnight. Very windy with blizzard conditions, low visibility, and strong winds causing blowing and drifting snow.
Precipitation:
Snow definite.

Snow Potential
18 to 26 inches of snowfall.

Wind:
SW at 15 to 30 gusts to 45mph. Winds above timberline; SW at 35 to 55 gusts to 75mph.