The REAL winners

[Edsel]

Consider another invasion to the practice of tax preparation by commercial entities: enter MORTGAGE COMPANIES.

Many will say the recently-passed legislation with the $7500 credit is to help people buy houses, save houses, sell houses, whatever. And blame the gubbermint for yet another redistribution-of-wealth scheme whereby the money flows from the rich to the poor.

Better take another look. The first-time homebuyers will never see this money. This $7500 credit will be so intertwined with the mortgage process that the big lending institutions will be the first at the trough. It will be similar to a RAL, only hopefully less of a rip-off.

And yes, so-entwined with the mortgage process that the mortgage companies themselves will be entering the tax preparation business to perfect their interest in the $7500 credit, which will become their down payment. So the taxpayer consents to the mortgage company to prepare taxes in the year of purchase. Remember, the $500 repayments are tied into this process as well -- so the government now has an interest in a succession of tax returns - whereby the $500 annual repayment can now be added to the borrower's escrow account.

Mind you, the mortgage company will have no particular skills in tax preparation, except with respect to the single line-item credit. But that won't matter to the government. And the mortgage companies will not necessarily be trying to make money by preparing taxes either.

But, have no doubt about it, the big lending institutions are the REAL winners in this process and not the homebuyers, as the gubbermint would have you believe.

You heard it here first.

[dodgedipduck]

So, there are people out there who can't afford a house. So, the government gives them $7,500 so they can buy a house they can't afford.

What is the root cause of the current real estate crisis?

Could we say that most who can't afford a house or who want a more expensive house than they can afford are likely to be less astute at managing money than people who can afford to buy houses? How many of those people will look at the $7,500 credit in the same context as the $7,500 they have to repay? Approximately none?

So, the government helps people buy houses they can't afford. Then in five years when they can't afford their houses, they have to sell or get foreclosed. In addition to the other financial troubles, they have to come up with five grand pronto to pay the government.

Great idea. Artificially create a real estate crisis, and multiply the effects by putting the government first in line to call in their loans when the chickens they sent off come home to roost.

What would the current real estate crisis look like if you added a $5,000 tax levy to each distressed homeowner? Think about it, because you will be dealing with it.

Of course, for the more financially secure and more astute, this will amount to nothing more than a $7,500 interest free loan from the government.

So, the less well off or less astute will suffer with an extra kick in the teeth when their houses have cause them financial devastation, while the more well off and more astute will benefit from interest free loans.

Another stimulus package anyone?

[Edsel]

Missed the Point

Dodgedipduck the entire idea of homebuyers not being able to afford, or won't pay in five years, or don't deserve the money, or whatever, may SOUND like something to rattle the sabers about, but it is irrelevant in the scheme.

These people will never see the money. They will not physically get the refund that is generated by the credit, nor will the IRS rely on them to repay the $500 per year.

Make no mistake about it, this is for the big lending institutions, under the guise of homeowners getting money to spend, etc.

Watch and see. The down payment will work like a RAL, the lending institution will electronically file for the $7500, and they will be entitled to charge interest up to the day they receive it. This assures that they will be able to loan money to someone who can't hold down a job flipping hamburgers at Burger King. Like I said before, this isn't about the hamburger flippers anyway -- it is about a mortgage company bailout.

Let's also consider the homeowner SELLING within 15 years, and leaving $4000 for example as credit recapture. Do you think for a minute that IRS is going to chase down someone who is judgement-proof and derelict? Nope. The $4000 will be added to the payoff - meaning (once again) it will be the mortgage company doing the collection for the IRS.

The mortgage companies will thus be in the middle of the tax business for these people whether they want to or not. Just like used car dealers preparing taxes for the RAL money. Think of it - [[POOF!!]] instant tax professionals on every corner.

Watch and see.

[dodgedipduck]

Missed the point

I got your point. You missed mine.

"...nor will the IRS rely on them to repay the $500 per year."

From the committee report:

"The credit is recaptured ratably over fifteen years with no interest charge beginning in the
second taxable year after the taxable year in which the home is purchased. For example, if the taxpayer purchases a home in 2008, the credit is allowed on the 2008 tax return, and repayments commence with the 2010 tax return."

"Dodgedipduck the entire idea of homebuyers not being able to afford, or won't pay in five years, or don't deserve the money, or whatever, may SOUND like something to rattle the sabers about, but it is irrelevant in the scheme."

It will be quite relevant to the already distressed homeowners when they lose their houses the government lured them into buying when they find a whopping tax bill on top of their mortgage troubles.

I don't disagree the mortgage companies will be the only ones to benefit. Everybody knows that. But there will be many other "relevant" effects.

[JohnH]

I wouldn't worry too much about the poor homeowners who sell or lose the homes they couldn't afford, yet the government helped them make the purchase.

Repayments begin with the 2010 returns which are due in 2011. Since 2012 will be another presidential election year, there will be lots of time for the Congress and the sitting president (who will already be gearing up for re-election) to pass bailout legislation forgiving those poor homeowners who were lured into buying something they couldn't afford. And there will be plenty of scapegoats (not including the government itself) available to blame. Of course, the taxpayers who don't rely on government handouts will ultimately foot the bill, but that isn't a problem when you're a legislator holding the legal power to lsteal from one taxpayer & redistribute to another in order to buy votes.

Personally, I'm not sure I want to prepare a return for someone using the $7,500 credit, since in the eyes of the taxpayer I'll be the evil enforcer telling him he has to repay the loan in each of the next 15 years. As far as I'm concerned, the mortgage company can prepare their returns for them - I don't care to be anyone's scapegoat.

[JoshinNC]

Is it possible to not take the credit

I wouldn't worry too much about the poor homeowners who sell or lose the homes they couldn't afford, yet the government helped them make the purchase.

Repayments begin with the 2010 returns which are due in 2011. Since 2012 will be another presidential election year, there will be lots of time for the Congress and the sitting president (who will already be gearing up for re-election) to pass bailout legislation forgiving those poor homeowners who were lured into buying something they couldn't afford. And there will be plenty of scapegoats (not including the government itself) available to blame. Of course, the taxpayers who don't rely on government handouts will ultimately foot the bill, but that isn't a problem when you're a legislator holding the legal power to lsteal from one taxpayer & redistribute to another in order to buy votes.

Personally, I'm not sure I want to prepare a return for someone using the $7,500 credit, since in the eyes of the taxpayer I'll be the evil enforcer telling him he has to repay the loan in each of the next 15 years. As far as I'm concerned, the mortgage company can prepare their returns for them - I don't care to be anyone's scapegoat.

even if one is eligible? Just a thought.

[erchess]

Question

I have heard about this in the news but is it the law yet and if so where can I read about it in TTB? I looked without success.

[Snaggletooth]

High Expectations

Erchess, yes it is law with the President's signature.

The President signed it Wednesday, July 30, two days ago.

Funny thing, I didn't find it in TTB either. Amazing. If you find a publication other than the government's release that has digested this thing in two days and updated their publication accordingly, please let me know.

Good grief.

[Bees Knees]

It will be covered in the next update. TTB does not re-print AP news stories or government press releases. TTB looks at all new tax laws and covers them from the tax preparer's perspective. Something no other publisher can do as no other publisher employs currently practicing tax professionals.

[JoshinNC]

And that's why we love ya!

It will be covered in the next update. TTB does not re-print AP news stories or government press releases. TTB looks at all new tax laws and covers them from the tax preparer's perspective. Something no other publisher can do as no other publisher employs currently practicing tax professionals.

Keep up the great work

[AZ-Tax]

Scapegoat? Haven't we been that for years?

Lets face it, we represent a business that pertains to a law that no one in particularly is found of, income taxes. Also, we also represent organization pertaining to tax planning and tax preparation. Another item that is not very popular with many taxpayers. "What, I gave you my W-2 for XYZ corp. I know I did. You must have lost it?". There are those clients that look to us as allies to their tax situation and/or organization and those that vent (scapegoat) on us regarding their tax situation and/or disorganization. Just like the stimulus rebate for which the IRS sent duplicate checks, checks to taxpayers that didn’t qualify etc., for which many on this message board saw that event as being an opportunity. The housing bill can be that same opportunity. My suggestion is to have your clients sign a form making them aware they will need to recapture the credit. Give them a copy and retain the original. Lord help us if the Mortgage companies decide to get into to the tax prep business. On the flip side this could open networking opportunities for us tax preparers with Mortgage firms. Your thoughts?

[erchess]

Sorry Guys

I didn't mean to criticize TTB. Please bear in mind that I didn't know when or even if the measures under discussion had become law. I quite agree that TTB should wait for something to become law and then take a bit of time to digest the law before attempting to write about it. I simply thought that it might be in TTB because it was being discussed here. I have a tendency to forget that some people read the government press releases and news stories that come out while a law is being shaped and then immediately afterwards.

I wonder why more of you do not do what I do and wait for the issue to be discussed in TTB. Do some of you have clients who hear about something on the news and call you to ask for your take? I don't think I have ever had a client do that to me.

[Bees Knees]

I was blasted with Economic Stimulus questions from everybody and everybody last tax season. I made the mistake of repeating news stories I read in the paper and on TV before having a chance to actually study the law. Turns out allot of what I heard was changed by the time the final bill was signed into law, and I had to re-inform a number of people I had talked to previously.

[Snaggletooth]

Alpha and Omega

Lord help us if the Mortgage companies decide to get into to the tax prep business.

AlphaZeta, I know this to be what Edsel feared. With respect to this $7500 credit, this will be the only item on the tax return where they can remotely claim expertise, and for shore the only item in which they will have interest.

I'm trying to think of what the alternatives are to mass tax preparation by the mortgage companies, who aside from the down payment couldn't probably care less about preparing taxes. The problem is how to assure these mortgage companies actually receive their money without risking having to collect from the borrowers. The only way immediate on the front burner would be for them to e-file to get their $7500 back.

Even this will create unprecedented changes. How about two routing numbers on the e-file menu -- one for the mortgage company, the other for the rest of the refund. This may become even more convoluted if the "rest of the refund" is a "pay" instead of a refund, but I don't foresee many taxpayers who will be in that situation.

One possibility is to alter the Form 1098, adding another field for the credit, whereby preparers like you and I can divert the money into the proper buckets. At some point, another field would be added for the recapture when we get into those years. Given the history of banks to duplicate Forms 1098, you can see what a donneybrook a duplication would create.

This has been a long post, but some things that we need to think about. I'll close, so as to leave it open for more discussion.

[JoshinNC]

I personally read upcoming tax law changes

I didn't mean to criticize TTB. Please bear in mind that I didn't know when or even if the measures under discussion had become law. I quite agree that TTB should wait for something to become law and then take a bit of time to digest the law before attempting to write about it. I simply thought that it might be in TTB because it was being discussed here. I have a tendency to forget that some people read the government press releases and news stories that come out while a law is being shaped and then immediately afterwards.

I wonder why more of you do not do what I do and wait for the issue to be discussed in TTB. Do some of you have clients who hear about something on the news and call you to ask for your take? I don't think I have ever had a client do that to me.

before, during and after passage because I am a political junkie and love to banter back and forth with those who both agree and disagree with me on the issues.

I also like to stay abreast of certain changes that may affect my client base and this particular law is going to affect many of my clients, either through the new "credit" or the changes discussed on the board regarding the changes to the primary residence exclusion.