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How to get help if you are buying, or can't sell, a home

Mar. 18, 2009 - 09:38PM   |   Last Updated: Mar. 18, 2009 - 09:38PM  |  
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Economic stimulus, tax breaks for homeowners, mortgage forgiveness, debt relief …

If you feel a headache coming on, you're not the only one.

All these things have something in common: money in your pocket. And they provide all the more reason for you to visit an on-base tax center for free assistance.

To locate the tax center, contact your">nearest legal assistance office.

Free help is available to active-duty personnel, retirees and family members. Some reserve centers are setting up tax preparation centers.

Legal assistance officers are explaining the consequences of one benefit, which provides a tax credit of up to $7,500 for people who bought their first home in 2008, said Lt. Col. Janet Fenton, deputy chief of the Army's legal assistance policy division.

In this case, "first time" means you hadn't owned a home in the previous three years. The tax credit is 10 percent of the purchase price, up to $75,000.

However, you have to start repaying the credit in 2010. If you receive $7,500, which most will, that's $500 a year over the course of 15 years.

If you sell the house or rent it, you have to pay the full balance of the tax credit in the year that the house is no longer your principal residence. Fenton said that's a critical consideration for military members, who often transfer every two or three years.

"I'm worried that a lot of them are taking the tax credit and don't understand they have to repay it" and need to plan accordingly, she said.

Not so if you're using the newer 2009 tax credit for first-time homebuyers, which is extended to those who close on their homes by Nov. 30, 2009.

You don't have to repay the credit for a home bought in 2009 unless you sell it within three years. The law also increases the credit to a maximum of $8,000 for homes bought this year, and it allows you to take the credit for the 2009 purchase on your 2008 taxes but if you do, you can only take a credit of up to $7,500.

A sailor whose Virginia home was foreclosed on in August has another question on mortgages. Normally, when debt is forgiven by a lender, it's considered taxable income. But the December 2007 Mortgage Debt Relief Act allows certain canceled debt on your principal residence to be excluded from taxable income, including mortgage debt forgiven in connection with a foreclosure.

The sailor said a tax form sent to him by the lender indicates that he, the sailor, must claim the loss as taxable income more than $125,000.

Fenton said the sailor should go to his tax center on the closest military installation for help in sorting it out with the lender.

According to the Internal Revenue Service, the lender was required to send a form 1099-C, "Cancellation of Debt," by Feb. 2. The information should be entered on IRS Form 982, "Reduction of Tax Attributes Due to Discharge of Indebtedness." Only lines 1e, 2 and 10b need to be completed on the form.

This sailor and others who have gone through foreclosure or other actions because they couldn't sell their homes after receiving reassignment orders may be able to benefit from provisions in the economic stimulus law signed Feb. 18 by President Barack Obama.

The law expands the Homeowners Assistance Program to help service members on permanent change-of-station orders affected during the current housing crisis, as well as certain wounded warriors and surviving spouses, and provides more help to those affected by 2005 base realignment and closure actions.

For assistance related to PCS moves and base closure and realignment, it applies to those who bought their primary residence before July 1, 2006, and sold it or will sell it between that date and Sept. 30, 2012.

The law authorizes the Defense Department to help homeowners in one of several ways, including buying the house or reimbursing for certain losses when the service member sells the house or suffers a foreclosure.

Applications for the program can be found">online.

Meanwhile, if you receive benefits under this program, they will be taxable anything you get that is over 95 percent of the current fair market value when you received PCS orders.

For those who are "upside down" on their mortgages, this could take a bite. For example, say your mortgage balance is $300,000, and you can sell your home for only $200,000. If the Defense Department provides $100,000 to pay off the mortgage, you would have to pay taxes on $110,000.

Talk to the tax preparation experts on your installation for advice on what you can do this year to mitigate the impact.

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