Primary Choice

8000taxcreditHomebuyers probably don’t see themselves this way, but as they step up to take advantage of the best housing values in more than a decade each becomes their own personal economic stimulus package, securing for themselves a fabulous long term investment even as they help rescue the economy from the mess it’s in.  More likely, they see themselves as grand prize winners in the housing sweepstakes; smartly timing the market just as prices are bottoming, interest rates are at an all-time low and the first time homebuyer tax credit is on hand to add an extra dollop of icing to the cake.  Moreover, if you also happen to be a newcomer to Florida your decision to move your primary residence to one of the least-taxed states in America will be the gift that keeps on giving.

For the stragglers among us—not to mention many would-be buyers who didn’t quite qualify for the first round of housing tax credits—Congress has just rolled back the clock by about six months to allow one last opportunity to take advantage of what has been an enormously popular and effective incentive.  Judging by the number of homes sold since the tax credit first went into effect; this is one of the few economic stimulus measures that have truly found its way down to the grass roots level.  We applaud Congress for not only renewing the credit in a landslide, bi-partisan vote, but also for broadening its benefits to include a substantially larger pool of potential move-up buyers.  At the end of the day, every buyer who uses the credit to sweeten an already great deal moves the housing market one transaction closer to shoring-up the rest of the economy.  Indeed, most economists are of the mind that until the housing market regains its footing, the overall economic recovery will simply stumble forward with precious little for anyone to cheer about.

Under the revised rules of the extended tax credit:

  • First time home buyers can now receive up to an $8,000 tax credit by entering into a binding contract on or before April 30, 2010; and closing by June 30, 2010.
  • Buyers who have lived in their residences for five years may now receive a credit of up to $6,500 (or, up to $3,250 for a married individual filing separately).
  • The tax credit is now available to individuals earning up to $125,000—or $250,000 for couples—on homes priced to $800,000

Although the mandatory 60-day contract-to-closing period is intended to offer last minute buyers ample time to complete their due diligence, now is not the time for hard-core procrastinators to slip back into their comfort zones.  It is most unlikely that the program will enjoy a third lease on life.  Plus, the supply of homes in the Sarasota is rapidly dissolving even as the choicest properties are fast being cherry-picked.  According to the latest count—issued last week by the Sarasota Association of Realtor—the inventory of available single-family homes and condominiums is at its lowest level since the summer of 2005.

Truth be told, the extended tax credit—while certainly newsworthy—shouldn’t be stealing the thunder from what ought to be making pulses race—mortgage rates that are at record low levels and not likely to stay there much longer.

For the week ending 11/12/2009, Freddie Mac announced that mortgage rates fell to 4.91%. Amazing.  Not that long ago, lenders were overjoyed to offer a rate of 6.0%; rather attractive for those of us who still recall rates three times as high.

In a side-by-side comparison—assuming a loan amount of $400,000—a mortgage with a 6% interest rate will generate a monthly payment of about $2,398. The same loan, based on a rate of 4.91%, reduces your monthly payment to $2,125—saving over $270 each month. Certainly nothing to sneeze at, but here’s where it really gets interesting. Over the course of a 30-year loan, you save more than $98,000.

Even if your income—or the home you wish to buy—vastly exceed the caps to qualify for the tax credit, there are even greater tax advantages to maintaining primary residency in Florida.  Chief among them is the fact that Florida is one of only nine states in which residents pay no state income tax. Plus Florida levies no state inheritance tax.  In addition, Florida ranks 47th among all 50 states in terms of combined state and local tax burden, with 1st place honors for the heaviest tax burden going to New York State. (Source: The Tax Foundation, Washington, D.C.)  Only Wyoming, Nevada and Alaska have lighter tax burdens than Florida; and you’ll hate their beaches in January.

Simply owning a residence here does not automatically make you a Florida resident. A person demonstrates legal residency by first filing a sworn Declaration of Domicile with the clerk of the circuit court.  Doing so in no way excludes ownership of a second home in another state, provided that primary residence is claimed solely in Florida.

In addition, the following relevant factors help prove a person’s intent to establish permanent Florida residency:

  • Your designated Florida mailing address.
  • Listing your place of employment.
  • Registration to vote in Florida.
  • A Florida driver’s license.
  • Florida license tags on all your vehicles.
  • Using a Florida address on your federal income tax forms.

From just about every possible perspective—moving to Florida is a decision that usually makes newcomers regret they didn’t do it a whole lot sooner.  In these days of historically low prices, low interest rates, no state income tax—and a major tax credit up for grabs—it’s never been easier to leave the cold weather behind and make Southwest Florida your primary choice.

Written by Tom Heatherman – Michael Saunders & Company

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