On July 2nd, President Obama signed the Homebuyer Assistance and Improvement Act. This bill extended the closing deadline for new home purchases, giving qualifying taxpayers who entered into a binding contract before May 1st for the purchase of a new home until September 30th to close on the home and qualify for the first-time homebuyer credit. The previous deadline was June 30th. This is good news for those of you who were cutting it close!

The extension only applies to people who
had ratified contracts in place as of April 30th that have not yet closed. It does not create a new tax credit; it simply extends the deadline by 3 months so more people can receive the $8,000 tax credit for first-time homebuyers and the $6,500 tax credit for second-time buyers.

The newly purchased home must be used as a primary residence. Other restrictions apply.

The new legislation makes the extension of the credit retro-active. However, some buyers could face unexpected complications, according to industry sources.

That is because contingency clauses in purchase contracts and the expiration of interest rate locks were based on the June 30th expiration date for the tax credit, and the closing of many properties may be more complicated even though the credit will be extended.

 The National Association of Realtors estimates
 as many as 180,000 homebuyers who were
 under contract by April 30th missed the closing
 deadline, including 17,700 in California, 15,340 in
 Texas, 14,830 in Florida, and 9,130 in New York.

 Many of the transactions involve short sales,
 which require the lender to agree to take a loss on the seller's mortgage, and generally take much longer to close than standard sales.  Currently, as many as 15 percent of distressed property sales are short sales.

The Making Work Pay tax credit caused some nasty surprises for taxpayers who ended up with a withholding shortfall due to the credit last year and will again in 2010.

Some people who are married or have multiple jobs found themselves coming up short for the first time ever due to the withholding tables adjustment required for that tax credit -- and taxpayers are likely to experience this problem again this year, according to the good folks at the IRS Stakeholder meeting in Los Angeles recently. Further, tax rates will be rising, which may come as a surprise to many next April.

We highly recommend you look at your withholding and begin estimating your taxes before year-end so adjustments can be made. As always, we're available to help year-round, and also strive to offer valuable resources on our website, such as the 1040 Estimator.

The IRS might be eliminating coupons for depositing payroll taxes!

The IRS has issued proposed regulations eliminating the rules for making federal tax deposits by paper coupon. The paper coupon system will no longer be maintained by the Treasury Department after December 31, 2010. The regulations are consistent with a Financial Management Service initiative announced in April to increase the use of electronic transactions between taxpayers and the federal government.

 The proposed regulations, REG 153340-09,
 generally maintains existing rules for depositing
 federal taxes through the Electronic Federal Tax
 Payment System (EFTPS).

If you are still filing with paper coupons, we will gladly help you get set up through EFTPS. Email us if you'd like to start the process!

From bloomberg.com:

The plan to let Bush-era tax cuts for the highest-income Americans expire would have limited effect on 76 percent of those taxpayers, a study says.

Under the Democrats' plan to end a tax break for those earning more than $200,000 per individual or $250,000 per couple, the 3.8 million filers who fall in the $200,000 to $500,000 income range would pay $2 billion more in 2011 taxes, or an average of $532, according to a July 30 letter from the nonpartisan congressional Joint Committee on Taxation.

The study conducted for the House Ways and Means Committee shows that those earning between $200,000 and $500,000 would account for 5 percent of the planned $38 billion tax increase. The biggest burden would fall on the 608,000 taxpayers who make between $500,000 and $1 million and the 315,000 who earn more than $1 million; the first group would pay $6.5 billion more, or an average of almost $10,000, and the second group would owe $31 billion more, or almost $100,000 on average, the analysis said.

The Joint Committee on Taxation estimated about 161 million tax returns will be filed in 2011. About 3 percent of those returns will be from individuals or couples earning more than $200,000, the committee said.

  Unless Congress acts, tax rates of 10, 15, 25,
  28, 33 and 35 percent will expire on Dec. 31 and
  be replaced with rates of 15, 28, 31, 36, and
  39.6 percent. A $1,000 child tax credit will be cut
  in half as would other family-related benefits and many married couples will pay more. Rates for capital gains will increase to 20 percent from 15 percent. Dividends, currently taxed at 15 percent, would be taxed as ordinary income with rates as high as 39.6 percent. In addition, a top 55 percent tax on estates worth more than $1 million will be reinstated.

Obama and the Democrats would retain the lower income-tax rate structures and family subsidies as well as reduced levies on investment income for those earning less than $250,000. They also want to extend restraints on the alternative minimum tax, a parallel system that if left unchecked would nullify the benefits of the tax cuts for more than 30 million families.

 
- Maco & Associates