10% IRS Tax Credit

mobile home university
1

We are having problems converting our rental units into owner occupied units. Here in Michigan, we must pay 6% sales tax everytime a home is sold, even if it is repo’d, then resold again. Our renters typically can’t afford the 6% tax plus 10% down. So, with that in mind I have a couple of questions:

  1. Has anyone used the new 10% tax credit to convert renters to owners? I would think the 10% credit would be a good sales tool.

  2. Does the credit need to be repaid if the buyer defaults? If so, I would think that would be a good dis-incentive to default.

  3. Assuming the buyer didn’t have 10% down, how could we get the 10% credit back to us as a down-payment, AFTER the buyers refund is received (probably several months after closing)?

2

Hi Greg,

The 6% sales tax is a killer in our state. What’s worse, you can pay it only to have the buyer split after one month and there is no mechanism to get a refund of those dollars. I’m not sure how this is any different from someone buying something at Costco, and returning after 30 days, except that the state lets Costco refund the sales tax. But I digress…

I haven’t looked into the 10% tax credit but I’m very interested. One thing I am starting to do is lease/option the units and giving a partial rent credit which can accumulate to be used as a down payment. Kind of like a forced savings program for the buyer. I don’t know how this will pan out long-term, but at least it will stop the wasted sales tax from being paid until you have time to determine if the people will be stable enough to own the home they are renting.

Jeff

3

Please explain what the 10% tax credit is?

4

Mike,

I mean the new 10% tax credit for first time homebuyers on new IRS form #5405. Good up to $7,500, and applied to first-time homes, mobile homes and houseboats bought from April 8, 2008 and July 9, 2009.

It is a 15 year, zero interest loan from the IRS, and is available even if the purchaser doesn’t owe any taxes!

I’m sure there is a good way to put this to good use, and convert renters to owners. We just haven’t found it yet.

Here is the link talking about it

http://www.federalhousingtaxcredit.com/faq.php

5

It’s my understanding that it isn’t just for first time buyers, but for anyone who hasn’t owned a home in 3 years.