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Homebuyer Tax Credit Changes
Congress has extended and expanded the homebuyer tax credit. The modifications in the column labeled “December 1 – April 30, 2010” became effective when President Obama signed the bill on November 6, 2009. All changes made to the current credit become effective on that date, as well. Also, see below answers to Frequently Asked Questions.
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FEATURE |
Jan 1 – November 30, 2009 Rules as enacted
February 2009 |
December 1 – April 30,
2010 Rules as enacted
November 2009 |
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First-time Buyer – Amount of Credit |
$8000
($4000 married filing separate) |
$8000
($4000 married filing separate) |
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First-time Buyer – Definition for Eligibility |
May not have had an interest in a principal residence for 3 years prior to purchase |
Same |
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Current Homeowner – Amount of Credit |
No Provision |
$6500
($3250 married filing separate) |
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Effective Date – Current Owner |
No Provision |
Date of Enactment |
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Current Homeowner – Definition for Eligibility |
No Provision |
No Provision Must have used the home sold or being sold as a principal residence consecutively for 5 of the previous 8 years |
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Termination of Credit |
Purchases after
November 30, 2009. (Becomes April 30, 2010 on Date of Enactment.) |
Purchases after April 30, 2010 |
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Binding Contract Rule |
None |
So long as a written binding contract to purchase is in effect on April 30, 2010, the purchaser will have until July 1, 2010 to close. |
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Income Limits
(Note: Increased income
limits are effective as of
date of enactment of bill) |
$75,000 – single
$150,000 – married
Additional $20,000 phase out |
$125,000 – single
$225,000 – married
Additional $20,000 phase
out |
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Limitation on Cost of Purchased Home |
None |
$800,000
Effective Date of Enactment |
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Purchase by a Dependent |
No Provision |
Ineligible Effective Date of Enactment |
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Anti-fraud Rule |
None |
Purchaser must attach documentation of purchase to tax return |
Maximum Purchase Price
Qualifying buyers may purchase a property with a maximum sales price of $800,000.
First-Time Homebuyer Tax Credit – Frequently Asked Questions
Here are answers to some commonly asked questions about the tax credit.
What is a tax credit?
A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual's primary residence.
How do I claim the credit?
For those taking advantage of the tax credit in 2009, you may choose to either apply for the credit with your 2009 tax return or you may apply for the credit sooner by filing an amended 2008 tax return with Form 5405 (http://www.irs.gov/pub/irs-pdf/f5405.pdf).
Can you claim the tax credit in advance of purchasing a property?
No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.
Can a taxpayer claim a credit if the property is purchased from a seller with seller financing and the seller retains title to the property?
Yes. In situations where the buyer purchases the property, even though the seller retains legal title, the taxpayer may file for the credit. Examples of this would include a land contract, contract for deed, etc. According to the IRS, factors that would demonstrate the ownership of the property would include: 1. the right of possession, 2. the right to obtain legal title upon full payment of the purchase price, 3. the right to construct improvements, 4. the obligation to pay property taxes, 5. the risk of loss, 6. the responsibility to insure the property and 7. the duty to maintain the property.
Are there other restrictions to taking the credit?
Yes. According to the IRS, if any of the following describe your situation, a credit would not be due.
- You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
- You do not use the home as your principal residence.
- You sell your home before the end of the year.
- You are a nonresident alien.
- You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
- Your home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
- You owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2009, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2006, through July 1, 2009.
Can you buy a home from a step-relative and be eligible for the credit?
Yes. Provided the person you are buying a home from is not a direct blood relative, the purchase would be allowed.
Can parent(s) who will not live in the property cosign for a mortgage for their child and the child that is a qualifying FTHB still be eligible for the credit?
Yes.
Can a separated spouse who has not owned a home for four years qualify for the FTHB tax credit if the spouse has owned a property anytime in the last three years?
No. However, the spouse may be eligible for the repeat buyer credit. The best path to take in any situation regarding income taxes is to speak with a professional tax preparer or CPA.
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