Homebuyers Tax Credit

On November 6, the President signed into law H.R. 3548, the ''Worker, Homeownership, and Business Assistance Act of 2009.'' The new law extends and expands the tax credit for first-time homebuyers.

Homebuyer credit basics:

This credit allows first-time homebuyers (those that haven't owned a home in 3 years) and "long-time residents" (those who have owned their homes 5 out of the last 8 years) to receive a refundable tax credit when they purchase a home. 

The credit for first-time buyers is 10% of the purchase price of the home up to $8,000. 

For "long-time residents"  the credit is 10% of the purchase price up to $6,500.

Only the purchase of a main home located in the U.S. qualifies. Vacation homes and rental properties are not eligible. The homebuyer credit reduces one's tax liability on a dollar-for-dollar basis, and if the credit is more than the tax you owe, the difference is paid to you as a tax refund.

The homebuyer credit is recaptured (i.e., paid back to the IRS) if a person disposes of the home (or stops using it as a principal residence) within 36 months from the date of purchase.

Rules:

Deadline (NEW):  The homebuyer credit is extended to apply to a principal residence bought before May 1, 2010. The homebuyer credit also applies to a principal residence closed on before September 30, 2010 when there was a written binding contract (such as an accepted offer) before May 1, 2010.

 Note that certain service members on qualified official extended duty service outside of the U.S. get an extra year to buy a qualifying home and get the credit; they also can avoid the recapture rules under certain circumstances.

Income Limitations:  The homebuyer credit now phases out over much higher modified AGI levels, making the credit available to a much bigger pool of buyers. For individuals, the phase-out range is between $125,000 and $145,000, and for those filing a joint return, it's between $225,000 and $245,000.

Home-price Limit:. For purchases after Nov. 6, 2009, the homebuyer credit cannot be claimed for a home if its purchase price exceeds $800,000. It's important to note that there is no phase-out mechanism. A purchase price that exceeds the $800,000 threshold by even a single dollar will cause the loss of the entire credit.

The new purchase price limitation applies whether you are buying a first-time principal residence or are a qualifying existing homeowner purchasing a replacement principal residence.

Other homebuyer credit rules. The new law includes a number of new anti-abuse rules to prevent taxpayers from claiming the homebuyer credit even though they don't qualify for it. The most important of these are as follows:

• Beginning with the 2010 tax return, the homebuyer credit can't be claimed unless the taxpayer attaches to the return a properly executed copy of the settlement statement used to complete the purchase of the qualifying residence.
• For purchases after Nov. 6, 2009, the homebuyer credit can't be claimed unless the taxpayer has attained 18 years of age as of the date of purchase (a married person is treated as meeting the age requirement if he or his spouse meets the age requirement).
• For purchases after Nov. 6, 2009, the homebuyer credit can't be claimed by a taxpayer if he can be claimed as a dependent by another taxpayer for the tax year of purchase. It also can't be claimed for a home bought from a person related to the buyer or the spouse of the buyer, if married.
• Beginning with 2009 returns, the new law makes it easier for the IRS to go after questionable homebuyer credit claims without initiating a full-scale audit.

No Wait to File:

The tax law still gives you the extraordinary opportunity to get your hands on homebuyer credit cash without waiting to file your tax return for the year in which you buy the qualifying principal residence.  You can amend the previous year's return to apply for the credit immediately.

What hasn't changed is the need for getting expert tax advice in negotiating through the twists and turns of the new beefed-up homebuyer credit. Please call us today for details on how the homebuyer credit can help you or your family members.